Ant Fraud Yields Death Sentence

By Ariana Eunjung Cha
Washington Post Foreign Service
Tuesday, March 20, 2007

YINGKOU, China -- To hear Chinese authorities tell it, Wang Zhendong is a danger to society, the worst kind of person, one who took advantage of his fellow citizens' naivete and trust. Last month, a court here gave him the death penalty for his crimes.

Wang's misdeed: selling overpriced ant farms to the public.

As China moves fitfully from a planned economy to a free-market system, cracking down on fraud, embezzlement and other financial schemes has become a major priority for the government. Among the cases taken most seriously are ones that harmed common people.

In Wang's case, for instance, investors shelled out 10,000 yuan, the equivalent of about $1,300, for cardboard boxes full of black ants, purportedly rare ones sometimes used in China to make medicines and wine but actually worth about $25.

Over two years, more than 36,700 residents of 12 towns in China's northeastern Liaoning province were tricked out of nearly $400 million, resulting in many of them losing their life savings. At least one investor committed suicide.

"This crime has seriously disrupted the financial order, social environment and the interests of ordinary people," said Wang Xinquan, vice director of financial affairs for the province.

In China, where more than 60 types of crimes -- including economic ones like tax fraud and bribery -- are punishable by death, the government has been criticized for its broad application of the death penalty. Some estimates put the number of court-ordered executions at as high as 10,000 a year. In 2005, Amnesty International logged 1,770 executions, or about 80 percent of the known total worldwide.

Last year, China sought to lower the number of executions by enacting a law that requires all death sentences to be reviewed by its supreme court; last week, the country's chief justice affirmed that the court would uphold only an "extremely small" number of such sentences.

But at the same time, it defended use of the punishment for financial crimes, which the government says rose 11 percent last year as unscrupulous people sought to take advantage of the booming economy.

In recent months, two former employees of China Construction Bank -- Zhou Limin, who was a branch manager, and accountant Liu Yibing -- were put to death by lethal injection for stealing almost $52 million from customers by offering bogus accounts that they said would earn high interest rates. And Li Rongxing, an oil executive, was given the death sentence for embezzling more than $4 million and taking $620,000 in bribes.

Supreme People's Court President Xiao Yang told the audience at a criminal law conference in November: "It is necessary to use the death penalty in China to punish criminals who commit extremely serious crimes in order to safeguard state security, public interests and smooth operation of economic construction."

The case of Wang Zhendong is one of the more bizarre scams. He grew up on a farm just outside Yingkou, a port city along China's northeastern coast, as famous for its piano workmanship as for its steel industry. After graduating from high school and finishing a stint in the army, Wang founded the Yingkou Donghua Trading Group in July 2003, according to law enforcement authorities.

The company's name in Chinese -- at 20 characters -- was unusually long in a language known for brevity, and it purported to show that the company was involved in plastics, machine tools, electrical machinery, fisheries, wine, soft drinks, silk and even chicken breeding. On the surface, at least, the company thrived, with 10 subsidiaries and 800 employees.

Wang's picture was often snapped as he stood next to government officials. His company was known for its philanthropy and was the subject of a propaganda piece in the local newspapers.

Su Changhong, deputy leader of the economic investigations unit for the Liaoning police, said Wang, who was married with three children, was known for giving gifts of large sums of cash to friends and relatives. "It was a way to show off his identity as a really rich guy," Su said.

But law enforcement officials say there was a dark side to the happy family man. He kept two mistresses, they said, and more importantly, his company was a facade, built on a pyramid scheme.

The company's advertisements called out to investors with an enticing offer: Invest the equivalent of about $1,300. Get two boxes of "rare" ants. Raise them for the company, and 10 times a year get $52 for your work. In one year, a participant would make about $520, a whopping 40 percent return.

People did get paid, at first, but it turned out that those high returns were being financed not by profits from real economic activity but by money flowing in from subsequent investors. The term doesn't exist in China, but in the United States, that would be called a Ponzi scheme, after Charles Ponzi, a Boston scammer who briefly became a millionaire in 1920 by using such a fraud.

For Wang Ling, 46, who operates a fruit stand with her husband, it seemed like a sound investment. She and her husband had $13,000 they were saving for their daughter's college education, but in the bank, it was earning about 4 percent a year.

"It seemed so easy," she said. "The work was little; the interest was high."

So she put down the money and cleared out a corner of her living room for the ants. Stacked on top of each other from floor to ceiling, the ant boxes became her life for more than a year. Through the window, she watched the long ants run around the grass in the box. Twice a day, she sprayed sugar water inside, and every three days, she placed pieces of cake there.

She wasn't particularly fond of ants, and it wasn't fun work, but, she said, "I was willing because I thought I was making money."

Along with other big investors, she got a tour of the company and felt confident that the ants were being turned into wine and medicines that would be sold at a profit. The Chinese have eaten certain ants, brewed wine from their bodies and turned them into medicines for thousands of years.

Each month, someone from the company came in a car to pick up the ants and pay her.

But the truth was that while the ants weren't totally worthless (they were of a large, edible variety) they weren't as valuable as the company claimed, and at some point, investors said, the company stopped caring whether the ants were returned dead or alive -- or at all.

A Ponzi scheme is doomed to collapse because it requires ever-larger sums and an ever-larger number of victims to keep paying abnormal returns to earlier investors. Wang's ant growers learned this cold fact of life in early 2005, when the company stopped paying them.

Angry investors surrounded the company's headquarters with signs that read: "We want to eat! Return our blood and sweat money." Law enforcement swooped in.

In court, Wang Zhendong told judges that he's a simple farmer and never meant to lie to his investors. He said he just wanted to raise money to finance his other companies. He pleaded that he wasn't very good at business.

"He never meant to defraud anybody," said Sun Jingguo, an attorney hired by Wang's sisters. He said Wang invested profits from selling the ants in other projects his company was putting together and that "these projects had prospects for profitability."

In addition, Sun said, Wang "took positive steps to return the money" after he was informed that what he did was a crime. "He did not transfer the assets or run away."

Li Xuedong, 38, a wheat farmer who eventually got a third of his money back, said he didn't care whether Wang lives or dies, but he blames the government for helping build up Wang's reputation and for not acting sooner, saying the authorities must have known something was amiss.

"In Liaoning, power is bigger than law," Li said.

A spokeswoman for the province said officials who had contact with Wang before the investigation had no knowledge of his criminal operations.

Zhu Mingchen, 27, who lost nearly $65,000 and attended Wang's court hearing, which was not public, said he was shocked to see Wang waving to the officials coming into court during the February trial.

"Just like how Chinese elders wave the diplomatic wave," Zhu said. When Wang did that, Zhu said, victims in the courtroom started yelling: "Death penalty! Death penalty!" He said that when the court handed down its judgment, spectators "clapped five times."

Another investor, Zhou Ping, 54, who used to work at a glass manufacturing facility and invested about $6,500 that she had planned to use for her daughter's wedding, said she believes the government handed down the appropriate punishment.

"He should just die. He hurt so many people," she said. "Some people even sold their house, their cars. People don't have money, and they don't have work. What can they do?"

Wang has two chances to overturn his conviction in court and in the meantime is locked up in a provincial jail in Yingkou.

Fifteen of Wang's colleagues, most of them directors of the company's subsidiaries, were also found guilty in the ant-fraud scheme, receiving sentences of up to 10 years in prison.

Residents of the Yingkou area have grown wary of promotional schemes. They said they recently started seeing advertisements eerily similar to the ones Wang's company used. The new company, Ant Power Magic, is promising double-digit returns.

Staff researcher Crissie Ding contributed to this report.