The founder of the Chinese insurer that owns New York City's Waldorf Hotel went on trial Wednesday on charges he fraudulently raised $10 billion from investors and misused his position to enrich himself.
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Wu Xiaohui, chairman of Anbang Insurance Group, was detained last year. Regulators took control of privately owned Anbang in February following a multibillion-dollar global buying spree that prompted questions about its financial stability.
The case added to an avalanche of scandals for Chinese insurers. The industry's former chief regulator was charged in September with taking bribes. Executives of other insurers have been charged with corruption and mismanagement.
Beijing announced plans March 13 to merge the Chinese banking and insurance regulators in an effort to step up scrutiny of those fast-evolving industries. The ruling Communist Party has made reducing financial risk a priority after a run-up in debt owed by Chinese companies and local governments prompted rating agencies last year to cut Beijing's credit rating for government borrowing.
Wu is accused of fraudulently raising 65 billion yuan ($10 billion) and abusing his post to divert money for his own use, according to a report by prosecutors on the social media account of the Shanghai No. 1 Intermediate People's Court.
In court, Wu's lawyer argued what he was accused of doing was a violation of regulations but not illegal, according to another post. A third post said Wu objected that he didn't understand the law and didn't know whether what he did was illegal.
Most trials in China last no more than a day, even for complex financial cases. There was no indication when a verdict in Wu's case might be issued.
Anbang discussed possibly investing in a Manhattan skyscraper owned by the family of U.S. President Donald Trump's son-in-law and adviser, Jared Kushner. Those talks ended last year with no deal.
Regulators said they took control of Anbang on Feb. 23 to protect its solvency and consumer rights. The China Insurance Regulatory Commission said the takeover had no effect on Anbang's financial obligations.
On Wednesday, Anbang issued a statement on its social media account saying its business is stable has "sufficient cash flow" to meet policy commitments.
Wu founded Anbang in 2004 and gained a reputation for aggressive expansion in a stodgy industry dominated by state-owned insurers.
The company grew to more than 30,000 employees with 35 million clients. It diversified into life insurance, banking, asset management, leasing and brokerage services.
Questions about Anbang's future have swirled since it announced Wu handed his duties to deputies in June following news reports he was detained for questioning.
Anbang's buying spree stumbled after Beijing tightened investment controls in late 2016. Regulators said they wanted to cool spending on foreign real estate and other assets they said did nothing to develop China's economy.
Following that, Anbang failed to complete several deals, including the proposed purchase of U.S.-based Fidelity & Guaranty Life for $1.6 billion.
Wu also is accused of ignoring regulatory limits in selling high-interest investment products as short-term insurance contracts, according to Wednesday's statement.
Such sales raised 724 billion yuan ($115 billion) from 10.6 million investors from 2011 to 2017, the statement said. It said some of that money was transferred to companies controlled by Wu for "reckless personal spending."
Regulators warned Anbang and other insurers last year about use of such investment products.
Other insurers have been accused of endangering the financial safety of their industry through reckless speculation in stocks and real estate. The chairman of a life insurance company was barred from the industry last year in an unrelated case and a third company was prohibited from trading stocks.
Anbang's early investors included a state-owned automaker, an oil company and a mix of rural villagers and small business owners. Its multibillion-dollar string of global acquisitions raised questions about how it paid for its buying spree, including the $2 billion purchase of the Waldorf.
The company's negotiations with Kushner Cos. about a possible investment in its flagship property, 666 Fifth Avenue, prompted members of the U.S. Congress to raise ethics concerns.
Five lawmakers said in a letter to the White House the possible deal represented a "clear conflict of interest." They asked the Trump administration to confirm Kushner, who transferred his ownership stake to other family members, played no role in the negotiations.
Anbang said it raised 50 billion yuan ($8 billion) in capital in 2014 by taking on dozens of new shareholders. That increased its registered capital fivefold to 62 billion yuan ($9.5 billion), the biggest among Chinese insurers.
A prominent business magazine, Caixin, said in May 2017 at least 30 billion yuan ($4.3 billion) of that money really came from premiums paid by policyholders — a violation of insurance regulations.
Anbang denied that and accused Caixin of publishing negative information about the company and Wu after pressing it to buy advertising.
The CIRC sent investigators to Anbang in June. It said in a statement in February they ordered unspecified improvements in operations and management.