A scandal has broken around China's largest P2P platform, after it turned out that nearly all of its "investments" were fiction, media reports say.

A scandal has broken in China revealing the biggest-ever case of a Ponzi-scheme fraud in the country, and which has also engulfed its largest peer-to-peer lender, according to media reports. 

According to the South China Morning Post, Chinese authorities have busted a Ponzi scheme involving over RMB50 billion ($7.6 billion). The case surrounds Ezubao, the P2P lender.

At least 21 suspects, including the scheme’s alleged boss, Ding Ning, were under arrest, Xinhua, the official news service, was quoted as saying. The suspects are accused of luring in investors with false offers of double-digit annual returns. Ding paid for his luxurious lifestyle with the fraud, reports said.

Ezubao was launched in July 2014 and has launched an aggressive advertising campaign. Instead of engaging in legitimate lending, the operators of the business reportedly invented most of the projects listed on its website and used funds from new investors to repay older debts, in a classic Ponzi structure.

The largest-ever Ponzi fraud in history was that of Bernard Madoff, now serving a lifetime jail term in the US for a scheme estimated, according to some accounts, to have reached $65 billion. A number of wealth management firms were engulfed in the Madoff affair, leading to soul-searching in the industry about the rigour, or lack thereof, with which investments were scrutinised.

In the recent Chinese case, it came to light as President Xi Jinping listed financial risk management as one of the priorities for the country’s “economic work” this year. It also came as China’s political and legal affairs commission pledged to crack down on illegal financing deals and activities conducted via the internet, the SCMP said. 

(Editor's note: While this story is still in its relatively early stages and not all the facts are in, it does suggest that the alternative finance world of peer-to-peer lending, crowdfunding and other channels needs to be on the alert for fraud, particularly as such platforms often do not have the kind of depositor protection and other regulatory controls one associates with traditional banks. In much of the world, regulators are working to keep up with the pace of innovation to ensure crooks do not take advantage of investors. As with all such matters, however, it is worth reminding ourselves that caveat emptor - let the buyer beware - is good advice.)