(Yicai) Oct. 22-- CreditEase, one of China's first peer-to-peer lending platforms, has sent text messages requesting commission refunds from multiple financial advisors, including some who have left the firm, with the average per capita refund exceeding CNY1 million (USD149,745) and some in Beijing having to return as much as CNY20 million (USD3 million), amid an investigation into alleged criminal activities, according to a source familiar with the matter.

"The date for commission refund is traced back to 2019 at the earliest," the source told Yicai. The number of financial advisors required to refund commissions and the total amount are unknown yet.

On Oct. 12, the Chaoyang police in Beijing opened an investigation into CreditEase over illegal financial activities and took criminal coercive measures against the firm's executives, including actual controllers Tang Ning and Zhao Mei. Late the day before, the company sent an apology letter to its clients, admitting its quasi-fixed-income products had essentially defaulted and that it may have become insolvent after third-party institutions verified its assets.

There is a legal basis for requesting financial advisors to refund commissions obtained after CreditEase and related companies experienced a redemption crisis, Wei Bin, a partner at Beijing Long An Shenzhen Law Firm, said to Yicai. "After multiple wealth management platforms defaulted, there have been cases of notifying their ex-financial advisors to refund commissions."

First, it is necessary to distinguish the nature of commissions, Wei noted, adding that if financial products are suspected of illegal fundraising, commissions, rebates, and other earnings financial advisors obtain from selling and promoting such products may be identified as illegal income and recovered in accordance with the law. Even if financial advisors have resigned, they cannot be exempted from lawfully returning their illegal income, he stressed.

"Second, refunding commissions does not necessarily constitute a crime for financial advisors," Wei said. "In judicial practice, ordinary business personnel, organizers, and managers of illegal fundraising activities should be dealt with differently based on their subjective cognition, specific behaviors, and degree of participation. Whether financial advisors are aware of product violations, participate in false advertising, or assume management responsibilities will affect their legal responsibilities.

"But for those who knowingly and willfully engage in illegal fundraising activities to absorb public funds by means such as false advertising and promises of principal guaranteed and interest paid, as well as team leaders and managers who play an important role in illegal fundraising activities, the risk of bearing criminal liability greatly increases," he pointed out.

Some financial advisors hinted at "principal guaranteed" when recommending and selling related products, multiple investors told Yicai. According to the WeChat screenshot provided by one investor, a financial advisor said the fixed-income product the client bought was "guaranteed," meaning the product's principal and income are guaranteed.

In addition, several financial advisors used Yiren Digital (formerly Yirendai) as a credit endorsement when recommending products, including sharing news about and performance updates from the fintech firm with clients. "The underlying assets of fixed-income products are all from CreditEase's listed subsidiary Yiren Digital," one financial advisor had even said.

However, Yiren Digital has twice clarified its relationship to quasi-fixed-income products, emphasizing that, as an independent operating listed entity, it belongs to a business system independent from its parent firm's other businesses. Its operations and management are completely independent and do not affect each other, and it has not carried out any wealth management business, it added.

Established in 2006, CreditEase is one of the first financial institutions in China to provide inclusive finance and wealth management services. Its popularity grew when Yiren Digital went public in New York in 2015.

Editor: Martin Kadiev