Houbank, a Chinese online peer-to-peer (P2P) lending platform that counts Sequoia Capital China as a major shareholder, has been put on file for investigation and prosecution of alleged "illegal absorbing public deposits," the municipal public security bureau in Shanghai said in a statement on late Tuesday.
The authority placed a case against Houbank on August 14 over alleged illegal absorbing public deposits, which made the company become the latest platform collapsing due to the increasingly stringent government regulations on the internet-based P2P lending field.
The local authority in Shanghai said that it has taken "coercive measures" against 23 suspects, including the company CEO Lu Yong and vice president She Peiyan, such as the seizure of their assets related to the case, according to the statement. The official website and mobile app of Houbank have both halted services as of the writing.
The crime of illegally absorbing public deposits refers to an entity involved in operating financial credit business not approved by the People’s Bank of China, the country’s de facto central bank, and illegally absorbing public deposits for the purpose to lend the funds for profit. The crime, which was coined back in 1997, did not specify the definition of "illegally absorbing public deposits" and thus left great ambiguity.
The world’s largest P2P lending market is undergoing a major reckoning as Beijing tightens regulations by adopting stricter licensing requirements to arrest an epidemic of fraud and weakening investor sentiment fuelled by massive defaults. The country plans to start a trial registration process in pilot cities during the second half of 2019, according to state-run newspaper Economic Information Daily.
The number of online P2P lending companies in China has further reduced to 707 by the end of August 2019, down 24 compared to a month earlier, according to industry intelligence website WDZJ.com. The total transaction volume in the month was RMB78.04 billion (US$10.96 billion), representing a 15% decline compared to that of July.
Houbank, formally known as Shanghai Houbank Financial Information Service, was co-founded in December 2014 by Lu Yong, former executive at American credit card provider CapitalOne. The company primarily offers online credit loan information-matching services and online investment services through the Houben Finance mobile app.
The five-year-old company has performed an aggregate of 54,988 loans worth about RMB3.52 billion (US$494.86 million) with the number of borrowers amounting to 54,831 as of June 30, 2019. The number of lenders has totaled 192,243 during the same period of time, and the credit balance was nearly RMB1.18 billion (US$165.89 million) on June 39.
The company currently has 15,912 debtors, according to information disclosed on the company website.
Houbank closed a series A round of financing from Sequoia Capital China in December 2014, which made the blue-chip investor become the second-largest shareholder of the company with a 40% stake, according to Chinese business data provider Tianyancha. The shares are owned by a Beijing-based affiliate controlled by Sequoia Capital China partner Zhou Kui.