In China the Death Penalty For Running a Ponzi Scheme

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In the United States bilking people for tens of millions of dollars results in time behind bars. Just look at Nevin Shapiro, who stole tens of millions of dollars and received a 20 year sentence. In China, however, mass fraud can result in the death penalty. Lin Haiyan, a 39-year-old woman from Wenzhou, was recently sentenced to death for running a 70 million dollar Ponzi scheme. Does China have the right idea, or is the judicial system taking it too far?

In China the Death Penalty For Running a Ponzi Scheme

It appears that Ms. Lin did legitimately try to start an investment company. After soliciting investments from friends, former classmates, relatives, and other people in her extended network, she invested in a variety of high risk investments, including futures and high-risk stocks. Unfortunately for her and her investors, these investments turned sour and she began to rack up huge losses.

Instead of pulling the plug and refunding investors, however, Lin continued to solicit new investments, and when old clients pulled their assets, she simply handed out the newly invested money. As with every Ponzi scheme, this proved unsustainable and in October of 2011, the whole thing came crashing down.

Death Penalty In China

Now, Ms. Lin may well find herself staring down the barrel of a gun, as China still uses firing squads to carry out some of its executions. China is believed to execute several thousand people per year, however official statistics have not been released. While in the United States the death penalty is restricted to only a few crimes, in China it can be invoked for 55 different types of crime. Fraud and other serious economic crimes can and often do result in the death penalty.

It’s tempting to criticize the Chinese government for using the death penalty for economic crimes, but first we should understand conditions in China and the reasons why the government resorts to such harsh measures. As with most proponents of the death penalty, the government argues that it serves as a deterrent against future crimes. By deterring similar crimes, the public can be protected from unscrupulous activities.

And while in the United States or Europe the loss of financial assets can be devastating, in China it could literally amount to a death sentence for the affected families. China does not have a well-developed social safety network and financial losses can cause massive and unmitigated damage. With families relying on their own savings to purchase most goods and services, a sudden loss of their savings can lead to such dire financial straits that a person could literally die of exposure, lack of access to health care, or food. Of course, these things can occur in the United States too but the USA has social safety nets.

It’s questionable, however, whether the death penalty will actually prevent such crimes. For one, China is known for having a corrupt legal system that is plagued by bribery. Two, criminals rarely think they will get caught. Three, the surging economy will likely encourage people to take huge gambles anyway. Given these conditions, it’s entirely possible that crimes will continue unabated and in spite of the heavy handed use of the death penalty.  And if the death penalty does not actually prevent crimes, its use in economic crimes is highly questionable. (Even if it does help prevent crime, it is still questionable, but that’s a separate argument.)

What is perhaps most worrisome about this case is that it does not appear that Ms. Lin set out to set up a Ponzi scheme. Instead, her bad investment choices pushed her into an untenable situation in which she had no where else to turn. It does not appear that she set out with the intention to swindle her investors.  While the Chinese government may have a strong argument on protecting society from swindlers, it does not appear that Ms. Lin falls into this category. Instead, she simply made bad investment choices that eventually resulted in huge losses. To be sentenced to death over such an issue seems extreme.

Related reading 10 Worst Accounting Scandals of All Time [INFOGRAPH]

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