Chinese philanthropist arrested for illegally raising funds

09:54, May 07, 2011      

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A famous entrepreneur and deputy director of a local charity federation in east China's Jiangsu Province has been arrested for allegedly collecting public savings after tricking more than 400 people into investing in his company in exchange for promised high returns.

Pan Kaihong, owner of a cosmetics company and deputy director of the Nanjing Charity Federation, was accused of illegally collecting over 51 million yuan (7.8 million U.S. dollars) from 424 people, said an official with the procuratorate in Baixia District of Nanjing City, capital of the province, on Friday.

The 43-year-old entrepreneur was arrested in February and is currently under police investigation.

Pan, who established the Nanjing Huangpu Lulingzi Biotech Company in 2008, was elected the deputy director of the charity federation in December last year after he pledged to donate 30 million yuan to the federation.

If Pan makes good on his pledge, it would be the largest donation the organization ever received. However, he had only donated 1.2 million yuan by the time he was arrested.

Pan's company launched a "charity campaign" last year, in which consumers who bought its products were asked to pay at least 20 yuan as charity money, said Qin Bixin, an official with the procuratorate.

Customers who paid the extra money were then accepted as members of the campaign and would have the opportunity to invest in the company, with yield rates promised as high as over 20 percent.

The investment was realized in the form of buying the company's products.

The products were classified into four categories, according to their prices of 880 yuan, 2,460 yuan, 5,280 yuan and 8,800 yuan. Customers were asked to buy at least 10 products at a time, Qin said.

Further, anyone who helped the company find new customers would be awarded a commission.

According to the local industrial and commercial bureau and Qin, Pan's business model is similar to a pyramid scheme, as selling cosmetic products was not the company's main business, but only served as a cover for the illegal fund raising.

Many victims in this case said they fell into Pan's fraud, not only because of the high returns, but also the reputation Pan has as a kind-hearted and high-profile philanthropist.

Just last December alone, Pan and his company organized over ten charity events.

Many citizens interviewed by Xinhua also cast doubt over Pan's designation as a key official of the government-backed charity federation.

However, in many places in China, giving entrepreneurs titles of charity organizations has been a common practice to encourage them to donate more since China now does not have explicit policies to offer them tax breaks as a way of encouragement, according to Wu Yemiao, a professor with the Nanjing Normal University.

Citizens believe the federation should also be blamed, as it should have checked the source of Pan's donation before offering him the post.

The lack of legislation and supervision is restraining the development of China's charity industry, which is still in its early stage, said Xie Kaishun, a lawyer with the Nanjing-based Shicheng Law Firm.

People can easily use this to conduct crimes under the mask of charity, he said.

Source: Xinhua

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