LUOHU District People’s Court delivered a verdict Wednesday on a peer-to-peer (P2P) lending fraud case involving a Shenzhen-based company. Investors who fell victim to the fraud lost approximately half of the money they invested, the Southern Metropolis Daily reported.

    P2P lending refers to online financing occurring between otherwise unrelated lenders and borrowers without the intermediation of a traditional financial institution.

    Eastern Investment, a leading P2P company established in Shenzhen in June 2013, announced that its business had gone bankrupt after four months of operation. In November, the company’s two managers, Deng Liang and Xian Limingzhe, turned themselves in.

    In its verdict, the court stated that the company raised a total of 126 million yuan (US$21 million) from its investors and had paid back 74.71 million yuan by the end of October 2013.

    It also stated that the P2P lender owes 51.77 million yuan to its investors, but that only 25.22 million yuan (48.7 percent) has been recovered to pay off the debts. The two defendants were given jail sentences and fines July 15.

    The court announced that investors can claim their money within three months and that unclaimed money will go into the national treasury.

    One investor’s representative said that despite the heavy losses, they are relatively lucky compared to victims in similar fraud cases.

    Ma Jun, a leading researcher on P2P leading, said the case carries historical significance because it is the first P2P fraud case to be brought to an end by a court verdict in China.

    According to statistics provided by Wangdazhijia.com, by the end of July, Shenzhen was home to 258 P2P lending companies, which accounts for 20 percent of the national total.

    This year, 22 Shenzhen P2P lenders either went bankrupt or defaulted while in control of more than 200 million yuan of investors’ money.

    By the end of July, 154 P2P lenders across the country had run into problems, yet less than 50 companies had been prosecuted. Among those, only two cases had been concluded through a court verdict.

    Some investors cited in the Daily’s report suspect that the light penalties may encourage more P2P fraud.

    Insiders said both a lack of regulation in the industry and a lack of awareness regarding protection against fraud are the major contributing factors to the frequent occurrence of defaults among P2P operators.

    (Anna Zhao)