Membership system? Repayment of principal and interest? Be wary of the "Ponzi scheme" incident behind nursing homes | Situation | Ponzi
The Ponzi scheme behind the explosion in nursing homes
In recent years, there have been frequent incidents of mine explosions in nursing homes in many regions, often accompanied by illegal fundraising crimes. According to data from the China Judgment Document Network, the number of illegal fundraising crimes in the elderly care service sector in China has been increasing year by year from 2013 to 2020. In August 2022, the Supreme People's Court announced six typical cases of elderly care fraud, among which the "Lupeng Illegal Absorption of Public Deposits Case" occurred in Leping City, Jiangxi Province, which is a typical case of illegal fundraising committed under the pretext of investing in "elderly care projects". In March 2023, a journalist from "News Investigation" visited Leping City, Jiangxi Province and met multiple victims of this case.
According to the recollection of several elderly people, in August 2016, they often encountered young people in their communities or nearby parks who sent them flyers to promote the high-end elderly care institution developed by Hunan Taiyangshan Group in Leping. The flyers claimed that the company was named Leping Taiyangshan Elderly Career Development Co., Ltd. The elderly said that these young people will also lure them to a local hotel for free classes.
The content of the lecture is full of temptation, whether it is for elderly people who have never had contact with nursing homes or for elderly people who originally wanted to go to nursing homes. In addition, the propaganda campaign is something that the elderly have never experienced before. Several elderly people talked to us that if they invest money directly on site, they can immediately receive cash rebates.
According to the contracts provided to us by several elderly people, at that time, Sun Mountain Company charged membership fees ranging from 10000 yuan, 20000 yuan, 30000 yuan, and 50000 yuan at four levels: experience, love, VIP, and supreme. Members can enjoy different check-in discounts, and the more membership fees they pay, the greater the discount. In addition, in addition to on-site rebates, members can also receive welfare consumption cards worth 400 yuan, 800 yuan, 1200 yuan, 2400 yuan for every full year for three consecutive years. These welfare consumption cards can be used to offset meal expenses, supermarket shopping, and so on in the nursing center. Within three years, if a member has not checked in or has not fully consumed the membership fee and welfare consumption card, the company promises to refund the full deposit and the remaining deposit and welfare consumption card amount after three years.
Saving a sum of money, living in a nursing home can be discounted, and the gift of a welfare consumption card is higher than the bank's interest rate. Even if you don't stay, you can get back the cost and interest after three years. This kind of account makes many elderly people think it's very cost-effective and start investing money. Sun Mountain Company announced to the public that the future retirement center will be the Dashan Hotel built in Dashanwu Village, a suburb of Leping City. An elderly person mentioned to us that the company organized them to visit the ongoing Dashan Elderly Care Center.
When the old man brought us to the visit site at that time, it had already been converted into a hotel. According to the subsequent investigation by the investigating authority, at that time, the legal representative of Leping Taiyangshan Company, Lu Peng, and his father, Lu Guangming, who were the actual controllers of Taiyangshan Company, signed a cooperation agreement with local businessman and chairman of Dashan Hotel Company, Zou, in July 2016. The agreement stipulated that Zou would invest in the existing Dashan Hotel building and commercial land, while Taiyangshan Company would invest in decoration funds to jointly build a nursing center.
According to the agreement, the expected renovation time for Dashan Hotel at that time was two years. But in October 2016, some elderly people who had paid their membership fees requested to stay, so Sun Mountain Company rented Zou's Tianyuan Hotel in the urban area of Leping as a senior apartment for some elderly people to stay first. The old man Xu Binghe's home is near the Tianyuan Hotel. When he saw a nursing home in front of his house, he paid 30000 yuan first. However, soon someone caught up with him.
Many elderly people have expressed that they have experienced paying a sum of money before adding it. In order to encourage the elderly to continuously invest, Sun Mountain Company also organizes members to visit Yiyang in Hunan, Jiujiang in Jiangxi, Beidaihe, Three Gorges and other places for tourism.
Old man Wang Shuiying showed us photos of her trip to Yiyang, Hunan. At that time, the place they visited was the Nanuo Elderly Apartment in Yiyang, which later attracted social attention. According to media reports, on January 19, 2021, a 62 year old man in Yiyang City committed suicide by jumping into the river. The old man invested his life's savings into the Nano Senior Apartment, but lost everything due to the explosion in the apartment. According to the investigation, Nano Senior Apartment has absorbed a large amount of funds from the elderly, with a involved amount exceeding 300 million yuan. The crime mode of Leping Taiyangshan Company and Nano Senior Apartments is extremely similar, because Lu Guangming is the brother of Lu Guanghui, the person in charge of Nano Senior Apartments.
In March 2018, Lu Guangming was detained by the public security organs of Yueyang City, Hunan Province on suspicion of contract fraud. At this time, the renovation of the Dashan Hotel has long been suspended, and the elderly apartments in the Tianyuan Hotel, where the elderly are still staying, are no longer sustainable. In May 2018, the person in charge of the elderly care department of Taiyangshan Company wrote a "report material" to the Leping Public Security Bureau, stating that the elderly care department had already delayed the rent of Tianyuan Hotel for 4 months. Lu Peng returned to Hunan and ignored the company, evading responsibility. Lu Guangming has never provided any operating funds since the end of 2017.
On December 24, 2020, Lu Peng was sentenced to four years in prison and fined 50000 yuan by the People's Court of Leping City for the crime of illegally absorbing public deposits. After trial and investigation, it was found that Leping Taiyangshan Company illegally absorbed more than 1.65 million yuan of funds from 51 elderly people. After the incident, a total of over 560000 yuan has been refunded to the fundraising participants through recovery of stolen goods and damages.
Scholar Zheng Zhigang, who has been engaged in research on the aging industry for a long time, told us that due to the huge demand for elderly care, the country has vigorously developed the elderly care industry in the past decade. But driven by interests, coupled with the large initial investment and long return cycle of the elderly care industry itself, some enterprises have started to accelerate the return of funds through illegal channels.
Zheng Zhigang from the Chinese Gerontology and Geriatrics Society: In 2013, the State Council issued several opinions on accelerating the development of the elderly care service industry, which became the first year of the elderly care industry. So from this year on, capital from all walks of life began to pay attention to the elderly care industry and came in one after another. But after truly investing in this, you will find that with a large initial investment, you will start to think of various channels to solve this problem, especially in terms of funding, and some will end up in this illegal mode. So when these people see that this model is short and fast, and they can recover the funds, they start learning from each other. Because it is actually a Ponzi scheme, which uses the money of new elderly people to repay the interest of old people, and it does not have such high profits to support the interest and discounts it pays. So when the elderly want to withdraw and new elderly people cannot be recruited, it collapses, so a family collapses and there is a chain reaction.
The truth of the case and the popularization of legal principles
According to the court ruling, in November 2018, Lu Guangming was sentenced to four years and six months in prison by the People's Court of Yueyanglou District, Yueyang City, Hunan Province for committing contract fraud. After his release from Yueyang Prison in September 2022, he was immediately criminally detained by the Balihu Branch of the Jiujiang Public Security Bureau. On March 13, 2023, Lu Guangming was sentenced to three years in prison and fined 50000 yuan by the People's Court of Jiujiang Economic and Technological Development Zone for illegally absorbing public deposits by absorbing more than 15.6 million yuan from unspecified elderly individuals in society. In March 2023, we met Lu Guangming at the detention center in Jiujiang City, and he did not show any remorse for his actions.
Under our repeated questioning, Lu Guangming always avoided the question of how much funds he had. We saw in the cooperation agreement between Sun Mountain Company and Dashan Hotel that Lu Guangming promised to invest no less than 80 million yuan at that time.
The verdict shows that before establishing the Sun Mountain Company in Leping, Lu Guangming had multiple convictions for crimes such as contract fraud and false reporting of registered capital. Especially in December 2007, he was sentenced to eleven years in prison by the Higher People's Court of Hunan Province for committing contract fraud, and was released with reduced sentence in June 2013. Afterwards, he registered and established multiple Sun Mountain companies in Changde, Jiangxi, Jiujiang, Leping, Changsha, Yueyang, and other places. Among them, Leping's Sun Mountain company was established in April 2016.
In the Interpretation of the Supreme People's Court on Several Issues Concerning the Specific Application of Law in the Trial of Criminal Cases of Illegal Fundraising, it is clearly stated that funds are absorbed without the legal permission of relevant departments or by borrowing legitimate business forms; Publicly promote to society through channels such as the internet, media, promotional events, flyers, and mobile information; Promise to repay principal and interest or provide returns in monetary, physical, equity, or other forms within a certain period of time; Absorb funds from the general public, i.e. from unspecified individuals in society. Those who meet all four conditions at the same time should be recognized as "illegal absorption of public deposits or disguised absorption of public deposits". The court ruled that the actions of Leping Taiyangshan Company fully met these four conditions. And among them, the most vigilant thing is to promise to repay principal and interest.
Lu Guangming, who had a rich criminal record, successfully registered and established a series of elderly care enterprises in many places in Hunan and Jiangxi in a short period of time, despite insufficient funds. We can see in the court case files that Leping Taiyangshan Company not only has a business license issued by the local Market Supervision Administration, but also an approval document from the Civil Affairs Bureau. Many elderly people have also talked to us that it is precisely because they saw these things at the promotional event that they believed more in this company. So what was the regulatory situation at that time? How should relevant departments implement supervision?
Regulatory issues and how to regulate them
Regarding the regulatory situation of Leping Taiyangshan Company, we inquired with the competent department of local elderly care institutions, the Leping Civil Affairs Bureau, but the relevant person in charge stated that they were not aware of the situation at that time. We found in the court case files that the Leping Civil Affairs Bureau approved the Leping Taiyangshan Elderly Apartment and the Leping Taiyangshan Elderly Apartment Dashan Elderly Care Center on May 25, 2016 and July 26, 2016, respectively. However, on November 30, 2016 and December 1, 2016, the previous approvals were revoked due to "non-standard activities" and a requirement to "cease relevant activities from now on.".
Based on this analysis, the civil affairs department has revoked relevant approvals and urged the company's responsible person not to allow further absorption of funds. But according to Lu Peng, Sun Mountain Company did not stop there.
In October 2019, the Ministry of Civil Affairs issued the "Management Measures for the List of Joint Punishments of Distrust in the Elderly Care Service Market", which stipulated that if elderly care service institutions and employees fall under one of nine circumstances and are recognized by the people's court as dishonest defendants, local civil affairs departments should include them in the list of joint disciplinary targets and take disciplinary measures against them.
Experts believe that the management measures introduced by the Ministry of Civil Affairs not only provide reference for local civil affairs departments, but also for market supervision and management departments in pre supervision. We arrived at the Administrative Service Center in Leping City, and in the system, we saw the registration information related to Sun Mountain Company.
From the system data, we can see that the registration process of Sun Mountain Company was smooth at that time. Although it was subsequently listed as an operating anomaly due to the failure to submit an annual report, this is only the result of internal handling by the market supervision and management department. In the system, we did not find any relevant involvement of the person in charge of the enterprise.
From this, it can be seen that in order for the market supervision and management department to grasp the first hurdle of criminal record review, the sharing of information and data is the foundation. In October 2022, the People's Court of Leping City and the Market Supervision Administration of Leping City jointly issued a document proposing measures such as "maintaining lead sharing", "mutual transfer of lead documents and materials related to the functions of their own units", and "timely notification of trial results by the court to the Municipal Supervision Bureau".
The civil affairs department stated that as the supervisory department, they will cooperate with public security, finance, banking and other departments to handle the supervision of the accounts, bank statements and other fund flows of elderly care enterprises after discovering clues related to the case. But in daily supervision, for normally operating enterprises, they do not have the authority to directly inquire.
How else can in-process supervision manage a company's accounts or accounts, as the regulatory authorities are unable to access them at will? In the interview, the Civil Affairs Bureau of Leping City introduced to us the "Guiding Opinions on Strengthening the Management of Prepaid Expenses in Elderly Care Institutions" issued in April 2021 by the Civil Affairs Department of Jiangxi Province in collaboration with local finance, public security, banks and other departments. It is stipulated that elderly care institutions organized by social forces, in order to make up for insufficient funding for facility construction, shall simultaneously meet four conditions: "bed size of 300 or more" if they conduct marketing through sales of prepaid "membership cards" and other forms. At the same time, it is also necessary to comply with seven regulations, including "not inducing elderly people and their families to pay membership fees in the form of promises of repayment of principal and interest, other investment returns, promises of significantly lower than market prices for occupancy, discounts and rebates, and other preferential conditions.".
We have also seen content related to third-party custody of commercial banks in the policies of Jiangxi Province, such as "membership based elderly care institutions should establish custody accounts in designated commercial banks; elderly care institutions should pay all membership fees collected into custody accounts; custody banks should strengthen monitoring and early warning of custody funds", and so on. The similar policy design actually comes from the Opinion on Promoting the Development of Elderly Care Services issued by the General Office of the State Council in April 2019.
According to experts, relevant local policies are still being implemented. The Civil Affairs Bureau of Leping City also stated that due to the lack of private elderly care institutions with more than 300 beds in the local area, they have not yet practiced the third-party custody method of commercial banks.
Regulation is not omnipotent, but the reason why we need to weave a dense regulatory network is because there is a long-term objective demand for elderly care institutions in society. Especially for elderly people with disabilities, dementia, lack of children, or inability to be accompanied by their children, nursing homes are a necessity for their later life. However, the elderly are also one of the most vulnerable groups to temptation and deception. During the interview process, we found that various marketing strategies targeting the elderly are still pervasive.
Zheng Zhigang from the Chinese Society of Gerontology and Geriatrics: His desire for life, longevity, and health far exceeds his assessment of this risk. This is the complexity and long-term nature of illegal fundraising in the field of elderly care services. Fundamentally eliminating it, I think it's difficult in the short term. To truly achieve this, I think it still requires multiple aspects. The first one is from the demand side, which truly enables the elderly to have a full understanding of risks. Secondly, it is more about the development of our elderly care, providing elderly people with a good home for their elderly care, rather than choosing some illegal elderly care service providers due to the anxiety of elderly care. So from the supply side, there are two aspects. One is that we use strict supervision to make the supply side hesitant to do this. The second aspect is that we will use more innovation in the financial field to channel this fund and enable enterprises to better apply it to elderly care.
