China Says Anbang’s Founder Defrauded Investors of $10 Billion

BEIJING — One of China’s most prominent tycoons, Wu Xiaohui, on Wednesday denied criminal charges that he defrauded investors of $10.3 billion, in a case that shows how the government is going after individuals who capitalized on the risk-taking behavior that led to the country’s debt crisis.

Prosecutors accuse Mr. Wu, who founded Anbang Insurance Group, of illegally raising funds from investors by using false financial statements and promotional materials, according to an official account posted by the Shanghai No. 1 Intermediate People’s Court on Weibo, China’s version of Twitter. Prosecutors also charged Mr. Wu with embezzlement. If convicted, he could face life imprisonment.

The surprise trial came more than a month after the government seized Anbang and eight months after the police detained Mr. Wu. In court on Wednesday, Mr. Wu, who had not been seen in public since June, denied the charges brought against him.

“The defendant Wu Xiaohui stated that he did not understand the law and did not know whether his behavior constituted a crime,” according to the court’s account.

Mr. Wu is almost certain to be found guilty, as Chinese courts convict nearly everyone they accuse. His lawyers could not be reached for comment.

A former car salesman who married a granddaughter of Deng Xiaoping, China’s paramount leader in the 1980s, Mr. Wu was one of the many Chinese tycoons who rode the wave of credit stimulus that followed the 2008 global financial crisis, as cheap loans from state banks fueled an overseas buying binge of hotels, cinemas and soccer clubs. The company had gotten its start just a few years before the crisis, selling car insurance in the city of Ningbo, but grew to become one of China’s most ambitious insurers.

To do so, Anbang relied on selling Chinese investors “universal life insurance” products, which were more akin to wealth management products, promising guaranteed payouts. Many of the investors knew very little about where their money was going.

After acquiring the Waldorf Astoria, Anbang attempted a number of high-profile global deals, including an ultimately unsuccessful campaign to buy Starwood Hotels and Resorts Worldwide and a bid to buy a stake in a Manhattan office building partly owned by Jared Kushner’s family company. The deal with Mr. Kushner, President Trump’s son-in-law, was eventually abandoned after it was covered by the news media.

Mr. Wu’s fortunes took a turn for the worse last year when the government, wary about rising levels of debt, began to scrutinize its big deal-makers. That led to public criticism of some of those companies and restrictions on capital outflow. On top of that, Anbang was never able to explain fully who its shareholders are to American regulators, who were pressing the company on its ownership structure.

China is now trying to rein in the growth of its wealth management products industry, fearful that excessive levels of debt could destabilize its economy, the world’s second largest. On March 12, the Chinese government said it would merge banking and insurance regulators in an effort to close regulatory loopholes.

Prosecutors in China say that Mr. Wu concealed his control of a company that he then used to hold shares of Anbang Insurance and Anbang Group. Using one of the company’s subsidiaries, Anbang Property & Casualty Insurance Co., as a funding platform, he ordered the company to develop investment-type insurance products.

According to prosecutors, Mr. Wu led the design of the products and instructed the company to make false financial statements and marketing brochures. By doing that, the company managed to get approval from the China Insurance Regulatory Commission to raise funds from the public.

By Jan. 5, 2017, the company had sold $116.5 billion of products, far more than the amount the government had approved. Some of that money was then moved to the company that Mr. Wu controlled. Those funds were used to invest, to repay debts and for personal spending, according to prosecutors.