By Xiao Wang (China Daily)
Updated: 2007-07-12 13:55

The Jilin provincial bureau of public security is investigating an alleged private equity scam on the Internet to swindle money amounting to a reported 7 million yuan out of investors.

The suspect, identified as 35-year-old Wang Xiujie, has been placed under police custody. He allegedly posted stock tips in his blog, which is said to have attracted a large fan following, with many offering money totaling about 7 million yuan to invest in the stock market on their behalf.

Little did these stock enthusiasts know that Wang was unemployed and has never had any real experience or qualification as an investment advisor.

By setting up QQ groups on the Internet, a chatting terminal installed on computers, Wang recruited many "members" across several cities, including Beijing, Shanghai, Shenzhen, Jinan and Chengdu by the time police got a whiff of the scam. His blog, http://www.dtdg777.blog.163.com, was still online when the paper went to print.

According to China Securities Regulatory Commission (CSRC) regulations, individuals or agents can't operate securities businesses unless approved by the commission.

CSRC's Jilin bureau is helping the Jilin provincial bureau of public security in the ongoing probe.

The Jilin provincial bureau of public security spokesman, surnamed Zhang, only said the investigation is in progress, refusing to elaborate.

Song Yixin, secretary-general of the Shanghai Municipal Law Society and senior partner of Shanghai Wenda Law Firm, said: "Operating advisory business services without any form of industry certification is generally considered an irregular practice."

He said he believed such irregular private equity funds, if allowed to proliferate, will seriously undermine the credibility and disrupt the orderly operation of China's capital market.

Song said more efforts should be made to further educate investors to warn them of possible investment scams. Such awareness drives are particularly necessary at a time when more and more people are being drawn to the booming stock market without any basic knowledge about shares.

"Individual investors, especially those just testing the waters in stocks, should ask for advice from professional analysts and traders who work at registered investment companies," Song said.