(Yicai Global) July 11 -- The Henan government is accelerating its investigation into a financial scandal that has put the central Chinese province’s rural banks in the spotlight recently after depositors found their health codes turned red, preventing them from withdrawing cash. The results will be released soon, local financial regulators said.

Clients’ deposits at the four rural banks in the eye of the storm are being verified, the Henan Office of the China Banking and Insurance Regulatory Commission Henan and the Henan Provincial Financial Supervision Bureau said yesterday, just three days after more clients’ Covid-19 health codes turned red again.

This follows the sacking of the head of the social control guidance department of Zhengzhou’s epidemic prevention and control headquarters after the first such incident in June for changing people’s health codes without authorization.

The latest incident of health codes turning red was due to technical issues during the upgrading of the province’s health code system and the problem has been solved, the Zhengzhou Big Data Bureau said on July 8.

Arrests have already been made and some assets frozen, the Xuchang Municipal Public Security Bureau said yesterday. The investigation is proceeding in an orderly fashion, it added.

Yuzhou Xin Minsheng Village Bank, Shangcai Huimin Village Bank, Zhecheng Huanghuai Community Bank and the New Oriental Country Bank of Kaifeng have been attracting savers from around the country through a number of third-party financial services platforms with rates of around 5 percent a year, much higher than most banks.

However, many depositors found that they were unable to withdraw cash last month as their Covid-19 health codes had inexplicably turned red, preventing them from leaving their homes. This sparked an investigation into an organization called New Wealth Group whose owner has stakes in the four banks.

It was found that Lv Yi controls hundreds of companies and their shareholdings cross over, a person who worked at an affiliate of Henan New Wealth told Yicai Global, adding that Lv’s name never appears on the firms’ documents. In this way, Henan New Wealth was able to infiltrate some urban and rural commercial banks and use their stakes in other financial institutions to leverage funds which it then lent out at usurious rates.

The gang ran a financial services platform called Junzheng Zhida Technology which allegedly used some of the deposits it channeled to the rural banks to extend fake loans. Lv's network also set up a company called Chenyu Information Technology which could delete, block and tamper with data. These are all criminal acts, the police said.

China launched its health code system in 2020. It collects information about individuals’ travel and health status to facilitate Covid-19 prevention and control work. The code can be green, yellow, or red. People with red codes need to quarantine for 14 days.

Editor: Kim Taylor