Great frauds in history: Wang Fengyou’s ant-breeding scam

“Model entrepreneur” Wang Fengyou's ant-farming Ponzi scheme pulled in $1.2bn, with investors losing all.

A brochure for Wang Fengyou's investment ponzi scheme
A brochure for Wang Fengyou's investment ponzi scheme
(Image credit: © Zhuang Pinghui/South China Morning Post via Getty Images)

Wang Fengyou was born into poverty in China, but developed an entrepreneurial streak selling potatoes before turning to running a bottling plant, a slaughter-house and a taxi business. In 1999 he founded Yilishen Tianxi Group, which manufactured traditional Chinese remedies, including an aphrodisiac, made from ants. These products were heavily advertised on Chinese television with endorsements from Chinese comedian Zhao Benshan, and Bao Xishun, China’s tallest man. The apparent success of the company won him a stream of awards, including a “model entrepreneur” award from the government, and he was photographed with many prominent officials, including the now disgraced Bo Xilai.

What was the scam?

From 2001 Wang offered “investors”, mainly peasants who had received compensation for losing their land to development, the chance to earn large returns from ant farming. Investors got three boxes of “special” ants from his company for ¥10,000 ($1,600) and, for feeding them until they died, the firm would buy them back for a return of around 32.5% over 14 months. In reality, the firm was never legitimately profitable – it was a Ponzi scheme, with new investors’ money going to pay those who had invested previously. Large amounts were spent on gifts to officials.

What happened next?

In 2004 the US Food and Drug Administration banned Yilishen’s products from America on the basis that they contained active ingredients found in Viagra. This forced the company to abandon plans to float on the Hong Kong stock exchange and sales fell. In response, Wang stepped up recruitment for his scheme, but by 2007 investors’ money had run out, leading to protests involving 200,000 people. The authorities stepped in and arrested Wang. He was made to confess to organising counter-protests and sentenced to death; many of his managers were given prison sentences.

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Lessons for investors

Estimates of the numbers of those conned vary, but the scheme may have collected as much as $1.2bn. Despite official promises of compensation, investors got little or no money back and the police harassed and arrested those who complained. Endorsements from local politicians are never a guarantee of a scheme’s trustworthiness, especially in emerging markets where transparency and the rule of law may be limited.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri