Ants lead to a trail of risky investments

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 1 million would-be ant farmers, collecting about $1.2 billion. In mid-December, it filed for bankruptcy.

The story of Yilishen illustrates the get-rich-now mentality here, the constant search for a new angle by those struggling to make a go of it with the communist economy having all but given way to private enterprise, and the frequent collusion of government officials in shady dealings.

Old rules of caution don’t carry much weight in a society that has seen some become absurdly wealthy, seemingly overnight. And government officials often are first in line to fleece the laobaixing, or common folk.

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 website of the Beijing Municipal Lawyers Assn.

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 only moved in to clean up the wreckage. On Dec. 21, the official New China News Agency reported that authorities cracked down on 3,747 pyramid schemes in the first 11 months of 2007. Chinese officials often issue such impressive-sounding statistics when under political pressure.

“This is one more case of organized cheating, hardly uncommon in China these days, that leave ordinary people at a distinct disadvantage,” said Zhou Xiaozheng, a professor of sociology at People’s University in Beijing.

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.

Before his fall from grace, Yilishen Chief Executive Wang Fengyou, 45, was something of a folk hero. Born poor, he sold potatoes and made bean curd to support his family before moving on to bottling, a slaughterhouse and a taxi business. He founded Yilishen in 1999 and started recruiting ant farmers two years later.

The New China News Agency, the People’s Daily and the CCTV broadcasting network ran glowing reports on Wang’s business acumen. In 2006 he received the government’s prestigious “model entrepreneur” award.

The company hired as its spokesman Zhao Benshan, a famous comedian and actor who specializes in playing a hick. He has since dropped out of sight.

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 careless teenager 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 website 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 the United States, 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.

A rival in the same province was sentenced to death for a similar ant-breeding operation early last year that conned people out of $387 million. Yilishen’s 17-floor headquarters of glass and steel is located in the northeastern city of Shenyang, where the economy is struggling with a legacy of state-run factories. The building, now shuttered, is adorned with drawings of smiling bugs with the slogan “ant power.”

Several victims interviewed in Shenyang accuse their leaders of letting them down.

“We’ve believed in the government so much, but they did this to us,” said a woman in a red coat who was interviewed in front of the office. She declined to be identified, citing concern that she could be arrested. As she spoke, two police officers approached and ordered a reporter to leave immediately or face interrogation.

Another victim said authorities had intercepted his e-mails about a meeting with a reporter and ordered him not to go.

An hour from Shenyang, in his sparse brick farmhouse lighted by a single bulb, Li showed the glossy book given to new investors, with pictures of Wang glad-handing celebrities and senior officials.

Li fears he has lost everything. But still, he and his wife keep their boxes stacked beside their foot-powered sewing machine. They continue to feed their ants and wouldn’t dare open the boxes, still clinging to hope that their investment might somehow turn around.

Before Yilishen shut down, its website 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 Nov. 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 late November, Wang paid his workers $185,000 to organize a counter-demonstration outside government offices, according to state media. This led to Wang’s arrest a few days later -- for disturbing public order.

“In retrospect, I can see it was a fake company with a fake website,” 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.”

Yin Lijin of The Times’ Beijing Bureau contributed to this report.