Hui Ka Yan, founder and chairman of the Evergrande Group, one of China’s largest property developers, once led the high life of a billionaire. In 1996, he started Evergrande in Shenzhen, a special economic zone, when the Chinese Communist Party had begun
experimenting with capitalism. He grew his company by accepting prepayments on apartments that weren’t built yet and funds from enthusiastic investors. Evergrande exploded exponentially but then finally collapsed in 2021 purportedly because of overexpansion,
excessive borrowing, mismanagement and alleged financial misreporting. The company exaggerated revenue by $78 billion.
In 2024, the China Securities Regulatory Commission accused Hui (also known as Xu Jiayin in Mandarin Chinese) of “organizing fraud.” He was fined $6.5 million and banned from Chinese financial markets for life. As of September 2024, he was reported to
be held in a Shenzhen detention center. The Chinese government ordered the liquidation of Evergrande in January of last year. Thousands of homebuyers were left with unfinished properties, and financial institutions faced significant losses. The broader
economic implications included a decline in real estate prices and increased market volatility, underscoring the systemic risk of such large-scale frauds.
(See “China Evergrande’s Crash Was Accelerated by Questionable Accounting,” by Alexandra Stevenson, The New York Times, Dec. 5, 2023; “China Evergrande Founder Accused of Exaggerating Revenue
by $78 Billion,” by Alexandra Stevenson, The New York Times, March 19, 2024; and “Exclusive: Evergrande Chairman kept in special Shenzhen detention center,” by Clare Jim and Julie Zhu,
Sept. 13, 2024.)
Like so many large frauds, Evergrande’s crimes flew under the radar for many years because regulators, investors, accountants and the company itself hadn’t examined its inner workings. Classic story. However, I believe that if these parties had just used
standard behavioral analytics they could’ve discovered debt concealment, asset overvaluation and other problems early on. Also, if Evergrande had had an ethical tone at the top, the company would’ve empowered its departments to examine themselves
with behavioral analytics to comply with national regulations.
Behavioral analytics is a method of fraud detection that analyzes user patterns to identify potential fraud or other illegal activity. It uses machine-learning algorithms to track and analyze transaction data and learn from new data points to detect evolving
fraudsters’ methods.
Most of you know the value of data and behavioral analytics. Here’s more evidence of their worth when you need to persuade management during purchasing season.
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