<article>When an entrepreneur surnamed You set out to build a sales team in Shanghai in December 2020, she thought she had hired a team full of potential to sell her firm’s fund products.</article>

When an entrepreneur surnamed You set out to build a sales team in Shanghai in December 2020, she thought she had hired a team full of potential to sell her firm’s fund products.
What she didn’t count on was for the 10 new hires to be regularly absent for work and fail to seal any deals. Worse still, they worked together to create a false sense of assurance of progress.
Eventually, she learned that these employees were con artists, whose ulterior motive was to milk the firm of base salaries.
You’s experience is shared by dozens of small and midsize private fund management (PFM) companies in China, including private equity shops, who’ve come forward to say they’ve been scammed out of salary payments — sometimes close to 1 million yuan ($146,895) — by people they hired to sell fund products, but didn’t put in any work.
Unlike mutual fund firms selling funds to the public, PFM companies can only sell privately-offered fund products to a limited number of eligible investors, typically high-net-worth individuals, and cannot publicly promote or market the products, according to Chinese regulations.
Thus, a well-connected sales team is the key to success, especially for small and midsize PFM companies who try to compete for clients with well-established peers. And that’s what scammers take advantage of.
After failing to recover their losses through the police or labour arbitration, the companies involved have taken matters into their own hands by compiling a blacklist of “scammer employees” to alert fellow firms to the schemes. However, collecting and spreading personal information has brought about risk of privacy violations.
<h3>Modus operandi</h3>
The con appears simple in execution: The scammers target small and midsize PFM firms that are seeking salespeople, and talk up their experience and client connections to get hired. After that, these new hires will receive base salaries, but never make any sales.
It took one victim five months to figure out that he had been swindled by such employees.
The scammers had a way with their words during job interviews, saying exactly what the employer wanted to hear, said the startup source, who first encountered such jobseekers in March. They fabricated stellar performance records for previous jobs and promised to raise several million yuan per month for his PFM firm, the source told Caixin.
The jobseekers seemed earnest and would offer to be on a probation period, according to the source. “They didn’t negotiate salaries, and were eager to sign job contracts,” he said, adding that they would start exploiting loopholes in the contracts later on.
It’s not unusual for a new salesperson to have no sales in the first month into the job, and leaders tend to be lenient with new hires, giving them time to familiarize themselves with the products before bringing in investments. But the scammers typically sit on their jobs bringing in no funds for months, whilst earning base salaries of up to 10,000 yuan per month, industry insiders told Caixin.
The startup source said he felt something was fishy during the five months the scammers worked for him, but he trusted their reasons for the lack of performance, which included impacts of the pandemic or the poor economy. They also kept making false promises, saying they would definitely make sales the next month, he said.
Some scammers even had people play potential clients and spent the company’s budgets on sending gifts to these fake customers, the source said.
During events his firm organised to promote investment products, the scammers arrived and left with presumed customers, the source said. They were different from other salespersons, who would discuss with him their progress with customers after sending them off, the source recalled, now aware of all the signs pointing to a deceptive scheme.
Many companies later found out that some scammers had introduced the same person as a potential customer to different firms.
Even when the scammers got customers to sign contracts, no funds were received. “In the beginning, I was told the customer was out travelling. Later, I was told the money would be transferred after the new year. It was just any excuse to delay,” the source said.
Earlier this month, the source finally realised that these people weren’t incapable employees, but professional scammers.
<h3>Loopholes</h3>
After PFM companies came together and shared their experiences, they identified hundreds of such scammers who had stayed on the payroll of at least two firms simultaneously just to earn base salaries.
Many of the schemers are men aged between 28 and 35 with work experience in financial firms, the companies found. There are also married couples, and older people who apply for senior positions. Many of them are active in Beijing and Shanghai, and go after small and midsize PFM firms.
These con artists preyed on these firms’ eagerness to build a team to raise funds and their need to scrimp on paying third-party sales channels.
A senior manager at a PFM firm had thought about outsourcing sales to third-party companies, but the cost could be triple that of building his own sales team, he told Caixin.
In their haste to build a team and save money, many smaller PFM firms don’t perform background checks on jobseekers, industry insiders said. An in-depth background check could cost more than 1,000 yuan and take around a week.
Some firms also happily agreed to job applicants’ suggestion that the latter pay their own social insurance fees, which are normally split between employees and employers, an industry insider said. However, without paying into the government-run social insurance system, firms won’t be able to easily identify if one of their employees is also working for other companies. This makes it easier for scammers to get paid by multiple PFM firms at the same time.
The startup source said he once had a chat over a meal with a trust industry acquaintance about a good-looking young woman the trust firm had recently interviewed. Upon seeing the photo of the woman, the source said that she had already started working at his place as a salesperson.
One thing that sets these schemers apart is that they refused to stay in the office, ostensibly to meet with clients, but the reality is that they were absent because they held multiple job positions, said the entrepreneur You, who only wanted to be identified by her surname.
“Whenever I told them to punch in their hours, they’d say they were meeting with clients and send me photos, such as of them having a meeting over tea,” said You. She added that the scammers cajoled her into believing that they were actually working.
You hired seven more salespersons based on recommendations of the first three scammers she hired. Only about half of the 10 would show up to meetings, You said. She later learned that these people took turns to show up and cover up for the others.
“I talked with other victims and found out that whenever a new firm was set up, these scammers would inform their fellows and flock to the new company like wolves on a hunt,” You said.
“One person I hired recommended his previous colleagues, so I hired them, too,” said the startup source, who ended up finding out that around 30 people he had hired were from the same circle, even though some had pretended to not know each other.
The source said one person had been employed by almost every firm in his industry, and had been involved in labor arbitrations with multiple firms in the span of three years. “He bought a Porsche with the base salaries he had gotten from all the firms,” the source claimed.
<h3>Difficulties in recouping losses</h3>
When these PFM firms tried to recover their losses, they often ran into a wall.
A firm owner said when he reported the scam to the police, the police said it was a civil dispute and refused to open a case. Meanwhile, firms usually lose in labor arbitrations, industry insiders said.
Given that the recovery of salaries paid to scammers is tough, some firms say prevention is the best medication. These firms have banded together to create a blacklist of these errant employees, and shared it with other firms in the industry. The list, which one firm showed Caixin, contained names, locations, firms the people worked for and reasons for them being listed. Some of the reasons were faking work experiences, earning base salaries without working, refusing to show social insurance records, and colluding to cheat.
While the firms said they haven’t decided to publish the blacklist, compiling and sharing such a list could have adverse legal ramifications. If the information collected is provided by the employees themselves, such as in resumes, then the collection is lawful, but spreading personal information, even in private, could infringe upon privacy and be treated as a civil offense, Cheng Hui, a Shanghai lawyer, told Caixin.
This story was first published on <a href="https://www.caixinglobal.com/2022-08-23/in-depth-how-chinese-private-equity-firms-got-scammed-by-their-own-sales-teams-101929982.html">Caixin Global</a>.

The scammers target small and midsize PFM firms that are seeking salespeople, and talk up their experience and client connections to get hired.

How Chinese PE firms were scammed by their own sales teams

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