ZHONGJIN Capital Management made a splash in the past couple of years in Shanghai.

    The wealth management firm’s imposing branch office on Shanghai’s historic Bund pulled in many eager investors seeking the double-digit returns it promised on short-term financing products. It had a big profile, sponsoring popular Shanghai TV dating program “Saturday Date” and signed up billiards star Pan Xiaoting as a spokesperson.

    But last week, the image of riches and success that it had cultivated came crashing down. Police said they arrested 21 executives linked to Zhongjin Capital on Tuesday last week on suspicion of “illegal fundraising,” a loosely defined term applied to irregular behavior in China’s energetic but opaque shadow banking sector.

    The only person named by Shanghai police so far has been top executive Xu Qin, who local media said had been arrested at the Shanghai airport on his way to get married in the Vatican. Xu has been described by domestic media as a high roller, who is under 30 years of age.

    Chen Jiajing, the 29-year-old chairwoman of Zhongjin’s parent Guotai Investment Holdings, cannot be located. Public statements issued last week by two Hong Kong-listed companies in which Guotai is a major stakeholder indicated they had been unable to reach her.

    Zhongjin employees said that other senior managers had been arrested during a raid on company offices. They were interrogated, allowed to use the bathroom only if they had a police escort, then hauled off, the staff said.

    Calls to Zhongjin and Guotai headquarters in Shanghai went unanswered. Both company websites were inaccessible Friday. The authorities did not provide further information about the case and what the investigation’s focus is.

    “The really strange part was that our business hit a new all-time high April 5, but the next day the offices were closed,” one employee who gave her name as Jiang said in a phone interview, adding that investors had been paid off on schedule the day prior to the arrests, but were unable to withdraw funds that were scheduled to mature Wednesday.

    “The victims are the small investors and the low-level employees. We all got our friends and family to invest in the company’s products,” she said.

    Defaults and fraud cases in China’s shadow banking sector have risen in the past few years as the economy has slowed and struggling companies have been forced to pay higher interest rates to raise cash as they try to stay afloat.

    The Shanghai arrests come two days after the municipal government launched a crackdown on illegal fundraising as part of a broader effort to stem financial risks.

    Zhongjin’s offices were often in some of the most expensive commercial buildings in the country and known for being full of investors eager to put down millions to buy its products. Investors said they would line up overnight to get a place in the queue, and offices were often full from 8 a.m. until 11 p.m.

    They looked like banks and were often located next to banks, giving them an air of reputability — a common practice among Shanghai wealth management firms seeking to burnish their reputations for stability in the face of rising reports of failure and fraud.

    An investor who gave his surname as Jiang said that he put 300,000 yuan (US$46,345) of his family’s money into the company in March because of its perceived trustworthiness and high profile.

    “The company’s offices were always busy and they always paid back investments on time. Who would expect this type of company to have problems?” he said. (SD-Agencies)