In China, a Million Fall For Ant Farm Ponzi Scheme

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

YAOZHAIZI, China — The illiterate farmer has hardly slept for weeks, and when he does he has nightmares. His breathing is irregular; his brow heavy.

The source of his anxiety? A tower of cardboard boxes in the next room.

Filled with ants.

After more than four decades of backbreaking work tilling the soil, Li Fanghai, 62, and his wife had managed to save $11,000, which they invested in ant farming.

These ants were far more than uninvited picnic guests, the couple were told. When ground into a powder, they become an aphrodisiac, a kidney purifier, and general cure-all, the Yilishen Tianxi Group declared. The ants would earn them a 30% annual return. In reality, critics say the ants apparently were little more than the bait for a vast pyramid scheme. Over an eight-year period, the company recruited as many as one million would-be ant farmers, collecting about $1.2 billion. In mid-December, it filed for bankruptcy. Instead of siding with Yilishen’s victims — mostly poor farmers, construction workers, and the unemployed — the government has blocked Internet postings and ordered reporters off the story, ant farmers say. Attorneys in the nation’s capital have been discouraged from representing any of them, according to the Web site of the Beijing Municipal Lawyers Association.

Most of the victims say they invested with Yilishen because of its close ties with the government and endorsements by prominent officials. Company officials frequently appeared with senior government officials. The company advertised extensively on state television and received a hard-to-get marketing permit.

But it apparently was only one in a spate of risky investment schemes.

In most cases, authorities moved in only to clean up the wreckage. On December 21, the official New China News Agency reported that authorities cracked down on 3,747 pyramid schemes in the first 11 months of 2007.

Some analysts add that since the 1989 Tiananmen Square massacre, which put an end to political reform, an obsession with money has supplanted a sense of solidarity and idealism.

The boxes at the heart of the ant farming business are made of cardboard with a 2-inch-square plastic window and a small feeding hole framed so badly with duct tape that they look like the work of a kid with a box cutter.

In return for their money, ant farmers were given the boxes, ants, and a list of strict instructions: The ants need a spritz of water mixed with white sugar or honey at 9 a.m. and 4 p.m. every day. They should be fed cake and egg yolks every three to five days. And they should be kept indoors. In return, the company would come and pick up dead dried ants every 74 days. Under no circumstances were the ant farmers to open their boxes and look inside, they were told, to ensure that the special Yilishen ants weren’t mixed with inferior ants.

So far, few details have emerged to illustrate how Yilishen stayed in business so long, or how much Wang profited personally. Most such schemes implode within a year or so.

But an unidentified former manager wrote on the Web site www.globalvoicesonline.org that “the media keeping the ball rolling along with ignorant people thinking a pie had just fallen from the sky.”

In retrospect, there were warning signs.

In November 2004, when the company attempted to export its health products, the Food and Drug Administration barred them from America, ruling that they contained prescription-strength sildenafil, the active ingredient in Viagra. This apparently killed Yilishen’s plans to list on the Hong Kong Stock Exchange.

Still, the company returned most original deposits with a 32.5% premium every 14 months, and most investors apparently plowed the profits back in to buy more ants. By some accounts, the average household invested $5,200, money often derived from settlements farmers received after their land was appropriated for development.

Before Yilishen shut down, its Web site claimed the company had moved well beyond ants to encompass a high-tech marriage of traditional Chinese medicine and modern technology.

When it started missing payouts, Yilishen announced that new funds from investors in Kuwait would allow it to pay everyone by November 20.

That didn’t happen, and thousands of anxious ant farmers descended on the company headquarters and provincial government offices. Authorities claim irate investors overturned cars and blocked rail lines. But one witness said the crowd was peaceful and that the real aggressors were the hundreds of riot police officers who detained and roughed up victims.

“In retrospect, I can see it was a fake company with a fake Web site,” said a woman who identified herself by the surname Sun, who said she used collateral from her apartment to invest almost $38,000 in ant boxes. “I feel so fooled. We just want to know what happened to our money.”


The New York Sun

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