CreditEase faces criminal probe, admits possible insolvency

Beijing police launched a criminal investigation into companies affiliated with CreditEase, a fintech conglomerate in China, and placed the group's founder and CEO, Tang Ning, and several other suspects under criminal measures.

The investigation comes as CreditEase acknowledged a default on its fixed-income-like investment products, warning that it may be insolvent, with a substantial debt repayment shortfall, while urging investors to register their claims with police.

The Chaoyang branch of the Beijing Municipal Public Security Bureau issued a notice on Monday, stating that it recently opened a criminal investigation into suspected criminal activities involving companies affiliated with CreditEase.

Several suspects, including Tang, 53, and his wife, Zhao Mei, 51, have been placed under criminal compulsory measures in accordance with the law.

To establish the full facts of the case, recover misappropriated assets and minimize investors' losses as much as possible, police said investors should register their complaints through one of three channels: filing a report online; submitting reporting materials by mail; or filing a report in person at an economic crime investigation department or police station under the public security authorities in their place of household registration, place of residence, or principal place of activity.

The Chaoyang branch emphasized that public security authorities are currently making every effort to investigate and handle the case. Investors are urged to actively cooperate with the police in their investigation and evidence collection, and to protect their legitimate rights and interests through legal channels.

Investors are also warned not to fall for scams perpetrated by criminals claiming, for example, to offer early repayment. They should remain vigilant and guard against fraud, police said.

On Sunday, CreditEase sent a targeted letter of apology to investors of fixed-income-like products via its affiliated Heritvest and Yiren Youxuan apps.

The group stated that in light of the contraction of its inclusive finance and wealth management businesses and their poor returns, it decided on May 22 to suspend all payouts on fixed-income-like products.

CreditEase said in the letter it intended to pursue an orderly wind-down and provide fair repayment to all investors to the extent possible. However, substantial losses across multiple business lines, combined with the low value of assets available for market-based disposal and the lack of effective sources of funding, resulted in an actual default on the fixed-income-like products.

The letter stated that a financial due diligence firm has reviewed the relevant documentation and preliminarily found that CreditEase might be insolvent, with a substantial shortfall in funds needed to meet its repayment obligations.

The underlying assets backing CreditEase's unpaid fixed-income-like products were of poor quality, and efforts to arrange a comprehensive market-based disposal of those assets had been unsuccessful. The legal due diligence firm stated that it was unable to independently assess the compliance of the fixed-income-like products based on the transaction channels, operating models and other relevant documentation provided by the group, CreditEase said.

The group also said it will address the risks associated with its fixed-income-like product business in accordance with laws and regulations, and to accelerate the process of achieving fair repayment to investors.