Investments supposedly helping Chinese students were actually a $3.2M fraud, B.C. regulator rules

The B.C. Securities Commission logo in an undated file photo.

A woman who claimed to be soliciting funds to help Chinese students and tourists was actually running a multimillion-dollar fraud, B.C.'s financial markets regulator has concluded.

Meiyun Zhang raised more than $3.2 million from three investors who were born in China but resided in Vancouver and Richmond, according to a decision by a panel of the B.C. Securities Commission, which was published Wednesday. 

Zhang did not participate in the BCSC's hearing on the matter, according to the decision.

The panel's decision describes Zhang's persistent communication with her victims, who made their investments through numerous transactions between 2014 and 2016.

The victims are identified only by initials in the decision. One, LD, made 102 investments totaling $1,745,414, at times taking out high-interest loans using property as collateral in order to continue investing.

Another victim, JL, made 34 investments totalling $1,178,996, while the third, TW, made 34 investments for a total of $227,700.

The decision notes that Zhang "varied her 'pitch' to the investors in order to find a message which would work for each of them."

"LD appears to have been mostly motivated by the potential to earn a return and Zhang mentioned returns of 10 per cent to LD," the panel's decision reads.

"In contrast, JL emphasized that when she told Zhang she was not interested in earning interest by lending money, Zhang’s approach shifted to emphasize how invested funds could help young people who were new to Canada."

At various points, according to the decision, Zhang claimed that the money would be provided to Chinese students and tourists in exchange for U.S. dollars and Chinese Yuan; to help Chinese students immigrate to Canada to study; or to provide loans to students from China so that they could show Canadian authorities they had enough money to qualify for visas.

The decision indicates Zhang promised her investors returns ranging from six to 10 per cent per month, and presented the investment as risk free.

In fact, BCSC investigators could not find any evidence that the money was spent for any of the purposes Zhang said it would be. Instead, Zhang used the investors' money to pay returns to other investors in Canada and China, repay a personal loan to a Realtor in Calgary, make purchases, pay bills, gamble at casinos and pay an immigration lawyer to dispute a removal order against her, among other things, according to the decision.

While each of the investors did get some of their money back, they ultimately lost a combined total of roughly $1.7 million.

The decision describes Zhang's fraud as having elements of both a Ponzi scheme – in that later investments were used to pay back earlier investors – and an affinity fraud targeting "a particular section of the population" and "exploiting trust and friendship within a group that have things in common."

"Zhang's actions were calculated and even predatory," the panel's decision reads.

Now that it has reached a decision on Zhang's misconduct, the panel will decide what sanctions to impose on her in a separate hearing.