(Yicai Global) Jan. 3 -- Peer-to-peer lender Agate Bay Technology, whose founders and senior executives previously worked at Chinese fintech titan Ant Financial Services Group, is under investigation on suspicion of illegally absorbing public deposits.

Authorities have filed an investigative dossier against Agate Bay, known as Manaowan in Chinese, Hangzhou city police said in a report yesterday.

Hangzhou-based Agate Bay announced its withdrawal from the online lending information intermediary business a month ago, but had not released a payment plan as of Jan. 1. A legitimate third-party loan broker that formed in June 2015, the company at some point seems to have crossed a red line into forbidden banking territory, like many others before it.

The crime of illegally absorbing public deposits does not have the aim of unlawful possession under Chinese law, but is rather a violation of rules that disrupts the financial order, but without larcenous or fraudulent intent, per se.

In an effort to subdue the explosive but rickety online shadow banking business Beijing blitzed the P2P sector all through last year. Some 970 practitioners went under in 2018, according to a report by Business Insider.

The nation's P2P sector "grew too far and too fast in the wrong direction," the report quoted Zennon Kapron, founder and director of Singapore-based fintech consultancy Kapronasia, as saying.

"The Chinese P2P market was one plagued by misappropriation of funds, dubious lending standards, and outright fraud," Kapron said. "This current implosion should be a stark lesson for regulators in other markets as they seek to regulate and rein in what is often becoming an out-of-control segment."

USD6 Billion Lent

Agate Bay had doled out CNY41.78 billion (USD6 billion) in loans as of Dec. 8, with a balance of CNY2.59 billion in credit extended and no overdue amounts, its own data shows. The firm has a registered capital of CNY100 million (USD14.3 million) and paid-in capital of CNY62.5 million, according to corporate data website Tianyancha. Founder and Chief Executive Chen Dawei is its legal representative.

The firm's investors and senior managers, including Chen and Chief Technical Officer Ma Ronghai, are all former employees of Ant Financial, the e-payments arm of Alibaba Group Holding.

Chen joined Ant Financial as head of its financial services research institute and assistant to its president in 2009. He left in 2015 to start Agate Bay. Agate Bay's Ma was a high-level engineer with Ant's online business division. Shareholder Liu Jun also previously worked for Ant Financial's online business.

Agate Bay's plight aptly depicts the pitfalls of P2P, and as Kapron observed, should stand as a cautionary tale for others. But this latest case study is unlikely to close the book on the ongoing saga of China's P2P woes.

Editor: Ben Armour