What's up guys and welcome back to wall street millennial on this channel, we've covered many corporate frauds and scandals. Today we're talking about a little-known case of financial fraud which almost took down one of the most systematically important financial institutions in china. In 2018, chairman of hua rong asset management, lai xiaomin, was accused of accepting 1.79 billion rmb or almost 300 million dollars in bribes. Over the previous decade, chinese authorities found more than 200 million rmb of paper cash hidden in his home.

He spent his money to support over 100 extramarital lovers, who he housed in properties developed by hua rong hua rong is a government-sponsored entity that holds more than one trillion rmb of assets on its balance sheet. It plays a systemic role in the country's financial markets. The scandal caused a complete collapse in confidence in the institution. Its shares were halted in march of 2021 after falling 75.

Since the scandal was uncovered, the chinese government was forced to bail out the company and, to this day it sits on the brink of bankruptcy. The case of lai xiaomin in hua rong is one of the largest bribery scandals in chinese history. One man almost single-handedly took down one of the largest and most important financial institutions in the entire country. China is one of the few countries which allows the death penalty to be used for white-collar crimes in january of 2021, lai was executed in this video we'll go over.

What huawrong is how lai was able to take 300 million dollars of bribes and how it all came tumbling down? First off we have to establish what huawei does, while it's called huawong asset management. It's not a traditional asset manager. It's in fact, a government-sponsored entity which is majority owned by the chinese ministry of finance. You can think of it as broadly similar to fannie mae and freddie mac in the u.s.

In 1999, the chinese government established hua rong in response to the asian financial crisis of the late 90s. Walrone's purpose is to acquire non-performing loans from traditional banks. The idea is that if all the bad loans are accumulated and fall wrong, the traditional banks will have stronger balance sheets and thus have a greater ability to support the real economy. In 2015, they ipo'd on the hong kong stock exchange with a market valuation of about 20 billion dollars.

While the loans the company acquired, were risky, they could still be highly profitable as they bought them for pennies on the dollar. In many cases, investors viewed hua rong. As a safe investment, as they thought, it was too big to fail, and the chinese government would support them in any financial crisis. In 2012, hua rong appointed lai xiaomin.

As chairman of the board. Lai was a member of the communist party and, as chairman of hua rong, he was basically a government official lie was a quintessential rags to riches story of post reform, china. He grew up in a rural community in extreme poverty living in this dilapidated residence. His parents were pig farmers and they only owned two pigs.

Despite his family's lack of resources, he ranked first in his county for the gaucho university entrance exam and was able to attend jiangxi university after graduating. He got a job at the people's bank of china, which is china's central bank. He rose the ranks and eventually became deputy director by the time he came to hua rong. He was a well-respected member of the communist party.

He portrayed himself as a public servant and said he would run the company in line with the party's ideals. In reality, he did the exact opposite while juarong was started off as a government-sponsored distressed debt manager, lai had grand ambitions to turn it into a full-fledged consumer and investment bank. On the institutional side he expanded the business into securities trading, ipo underwriting asset management and m. A advisory on the consumer side, they started hua roland consumer finance, which grants individuals revolving credit lines of up to two hundred thousand rmb in the mid-2010s paul roll was a full-fledged investment.

Bank lai was obsessed with short-term profitability and didn't seem to care about how much risk the company was taking on as they expanded into new businesses, many of which they had little or no experience in the investment banking industry is highly interconnected. A large investment bank has to maintain relationships with hundreds of other financial institutions as clients, counterparties and business partners. As chairman, why would negotiate the largest of these business relationships personally in a normal business negotiation, each party negotiates on behalf of the institution which they represent. There's always give and take, but in the end they only agree to a deal if both parties believe it's mutually beneficial, but in the case of lie, he wasn't really negotiating on behalf of hua rong.

He was in fact negotiating on behalf of himself in an interview recorded after his arrest. He said he would be having business meetings with individuals who had net worth in the billions or even tens of billions of dollars when he gives them a favorable deal with law role. They could benefit to the tune of hundreds of millions of dollars. It only seemed natural that they would give light a little bit of money in return.

If a rich business partner owned dozens of mansions, they would give one of them to lie. Sometimes they would come to life's house with a luxury car such as a bentley. They tell lie if you like the car. I can just leave it here with you.

They would also give them expensive, calligraphy and gold bars, but most of the time the brides would be just paid with paper cash. This way there is no trace of the illicit payment ever being made in total, he accepted at least 1.79 billion rmb or almost 300 million dollars of inappropriate payments by 2018. He accumulated dozens of luxury properties in beijing which he would use to houses over 100 extramarital partners. He would also use these properties to store hundreds of millions of rmb of cash.

In one of these properties, the authorities found over 200 million rmb of cash, which weighed three metric tons when talking to his associates, he used the code word supermarket to refer to his cash words. He would also give his mistresses jobs at juarong, allowing them to become senior executives and general managers. This is despite the fact that most of them had little or no experience to qualify them for these roles. The investment banking business is highly competitive and it's very difficult for any new entrant in the industry to succeed and hua rong was playing with two major handicaps.

Firstly, their chairman was getting paid hundreds of millions of dollars in bribes to make unfavorable deals on behalf of the company and, secondly, their senior executive ranks were filled with lies mistresses. But despite these headwinds, lye was going all in on huawei's expansion. He issued 50 billion dollars worth of bonds to fund the company's new ventures. In 2018, the chinese government started to take notice of huawei's business dealings in hong kong, while rome was taking on inordinate risk by lending billions of dollars to highly leveraged financial companies in the city, they started an investigation and quickly found evidence of his corruption.

He was forced to step down as chairman expelled from the communist party and arrested under corruption charges. The government appointed a new ceo liang chang to wind down harold's, more risky businesses and turn back to their original mandate of managing distressed debt. But this is easier said than done: lie had already racked the company up with huge debt burdens, making it very difficult to wind things down facing huge losses. They missed the deadline for filing their 2020 annual report as they work to restructure their business internally.

The failure to file the financial report caused the hong kong stock exchange to halt trading of a stock in march of this year. It has remained halted ever since. On the last day of trading, the share price had fallen 75 percent. Since the scandal began, the value of their bonds also tanked, as investors fear that their massive debt burden could be too much for them to repay.

Hua rong has over 1 trillion rmb of assets and liabilities and hundreds of financial counterparties if it were to go bankrupt. It would likely cause a financial crisis similar to lehman brothers. In 2008., the chinese government decided that the company was too big to fail in august of 2021, they organized a multi-billion dollar bailout to save the company. Under the terms of the bailout, polaron will issue billions of new shares, which will significantly dilute the value of the existing shares.

However, they say they will have enough liquidity to pay their bondholders in full. As for lye on january 5th of 2021, he was sentenced to death on charges of corruption and bigamy. It was found that he was married to two women at the same time, which is illegal under chinese law. He was executed on january 29th, just 24 days after his sentencing, while in jail, lai said that he regrets his actions while he had hundreds of millions of dollars in ill-gotten gains.

Most of it just sat as cash in his houses or in secret bank accounts. He was only able to enjoy a small portion of it, alright guys that wraps it up for this video. What do you think about the hua rong scandal? Let us know in the comments section below, if you enjoy this content, make sure to hit the like button and subscribe. So you don't miss future uploads as always.

Thank you so much for watching and we'll see you in the next one wall, street millennial, signing out.