Another case of illegal fundraising in China emerged on Wednesday, prompting Shanghai’s local government to cease new registrations for investment firms, following a similar move by the Beijing authorities in January.

Shanghai-based Wealthroll Asset Management – also known as Zhongjin Asset Management – has been shut down as part of a police probe into suspected fraud. The firm’s private equity arm is alleged to have gathered Rmb34 billion ($3.4 billion) in assets in a scam using false performance figures. Wealthroll’s website has been inaccessible since yesterday afternoon.

This reflects a continued crackdown by Chinese authorities on illegal fundraising, efforts that began in earnest after peer-to-peer lender Ezubao was unveiled as a ponzi scheme in late January. 

China research firm Red-pulse and local media reported that Shanghai’s Administration of Industry and Commerce (AIC) had suspended registration of investment companies on April 6, but there was no official announcement.

The Wealthroll probe came soon after Shanghai-based Jinlu Financial Advisors was closed down in late March after defaulting on payouts from its wealth management products because of a shortage of cash.

The Jinlu and Wealthroll cases may have pushed the government to make the decision to suspend registration, noted Red-Pulse.

Shanghai had already suspended registration of internet-financing and P2P firms in January, while in the same month the Beijing AIC suspended registration of all investment firms.

The police said on April 6 on its official Weibo account that it had detained more than 20 employees of Wealthroll on suspicion of illegal public fundraising and fraud. They included individuals from its parent company Guotai Holding, Wealthroll Equity Investment Fund Management (Shanghai) and Shanghai Wealthroll equity investment fund I (an entity set up for a new private equity fund).

The police said the group had set up more than 50 subsidiaries across the country and launched PE products in partnership structures promoting high returns, but that the business was a scam and the product performance was false. The group had gathered assets from 130,000 investors as of February 10, according to the firm’s report.

Wealthroll Equity Investment Fund Management (Shanghai) is a PE firm registered with the Asset Management Association of China (Amac). It was founded in November 2012 and has launched 11 funds since December 2013, mainly invested in non-listed companies’ convertible bonds and shares, according to Amac filings. Its latest product – Wealthroll equity investment fund I – completed fundraising on April 1, reportedly with Rmb5.26 billion.

Amac has ramped up scrutiny of private funds this year, with a view to reducing the number of so-called ‘shell companies’ and of firms not intending to manage money but instead running financing business such as P2P lending, as reported.