(Bloomberg) -- China has opened a criminal investigation into Hywin Wealth Management Co. for alleged involvement in illegal fundraising, with “coercive measures” taken against multiple suspects at the firm, according to Shanghai police.
The police didn’t specify on the measures in a statement that it released, but in China, “criminal coercive measures” could typically take the form of seizure or detention. The probe into Hywin, once the nation’s largest distributor of real estate wealth management products, comes nine months after it pledged to address delayed payments on some investment offerings it had distributed.
The suspects include two people both surnamed Han and one surnamed Wang, the statement said. The police said it’s “collecting evidence at all fronts and pushing forward the investigation to recover losses and protect investors’ interests to the maximum.”
Talk on delayed payments on investment offerings distributed by Hywin surfaced in December last year, sinking the shares of its US-listed entity Hywin Holdings Ltd., which changed its name to Santech Holdings Ltd. earlier this year and severed its ties with Hywin Wealth.
Santech also said in late June that Hywin Wealth will be owned by Han Hongwei who plans to resolve ongoing redemption issues for its Chinese clients. The Shanghai-based firm, established in 2006, had more than 152,000 clients and 8.5 billion yuan ($1.2 billion) of assets under management as of June last year.
Hywin Wealth had pledged to address the issue and come up with a treatment plan before the end of last year, but announced in January that it was undergoing a review of its assets and that it needs to restructure debt to “rescue itself.”
While it’s unclear how much of investor money is involved in the case, it’s another sign that China’s property crisis, now on its fourth year, is hurting the nation’s middle class families. Hywin had worked with developers such as China Evergrande Group and Sunac China Holdings Ltd. according to its listing prospectus.
China’s wealthy investors were rocked last year by shadow banking giant Zhongzhi Enterprise Group Co., which warned of severe insolvency after one of its trust affiliates failed to make payments on high-yield products. China later opened a criminal investigation into the firm, which pooled household savings to invest in areas including real estate, and Zhongzhi filed for bankruptcy early this year.
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