When Wang Dehong saw the female boss of a Chinese online lender interviewed on state television CCTV, promising both safety and high returns, the stay-at-home mum thought she had found her ideal investment.

So she put her savings of 180,000 yuan ($27,000) into the financial products of Ezubao, or "easy rent treasure", one of hundreds of peer-to-peer (P2P) lending firms in China that match lenders and borrowers through the Internet.

For six months, she received regular messages on her smartphone showing payments into her Ezubao account, earning her as much as 12.8 percent annually — far more than she could hope to get from a bank.

In December, they stopped.

Now the firm has collapsed, with police saying it bilked 900,000 investors out of $7.6 billion — among the biggest financial frauds in recent history.

The state broadcaster this week paraded some of the 21 arrested executives involved with Ezubao — including the same executive it interviewed in May last year — confessing the business was nothing more than a "Ponzi scheme".

The scandal highlights both poor regulation in the world's biggest P2P market, and how China's small investors fail to recognise financial risk.

With China's one-year bank deposit rate now standing at just 1.5 percent and few choices for investment in the face of a volatile stock market, declining currency and weak property values, customers flocked to Ezubao's "guaranteed" return of principal and interest rates of 9.0 to 14.6 percent.

"It all looked very reliable, compared with the rest of the investment channels I saw," said Wang, the mother of a five-year-old son, who has turned back to the Internet to sell shrimp from her native Shandong province at 64 yuan a kilogramme to make ends meet.

– 'Typical Ponzi scheme' –

CCTV's interviewee was Zhang Min, the president of Ezubao's parent firm, who said its products were better and safer than other assets.

In a television advertisement also shown on CCTV, Zhang appeared in a white jacket and tan skirt with a slogan urging investors to "have success" with Ezubao.

Clad in an orange prison uniform, a tearful Zhang said in a broadcast on the same television network on Monday: "It was a typical Ponzi scheme."

Such public confessions while in custody are a regular event in Communist-ruled China, with critics saying there is no way to tell whether the detainee is speaking under duress.

Police quoted by state media said Ezubao concocted fake projects to attract investment and pocketed funds instead of passing them to borrowers to generate a return. One officer describing the firm as a swindle that moved money from the operator's "left pocket" to its "right pocket".

China has nearly 2,600 platforms described as P2P businesses, according to website www.wdzj.com which tracks the industry, with transactions valued at around $150 billion last year.

The sector has created a source of funding for small, private firms, which are typically shut out of the state-dominated banking system.

But the area is poorly regulated and some Chinese P2P companies operate without licences and use offline methods to find lenders and borrowers, unlike platforms in other countries, experts say.

"Regulations have typically been slow to react to new forms of online finance so that new companies are, in effect, allowed several years of unregulated growth and development before officials begin clamping down," non-profit organisation Positive Planet said in a report in August.

Even so, Ezubao was authorised by regulators.

Dozens of its investors from across the country protested in Beijing on Thursday, demanding authorities pay back their losses.

– 'Black hole' –

China P2P industry is less than 10 years old, and includes giants such as Lufax, linked to financial conglomerate Ping An, which is now valued at $18.5 billion after a recent round of funding.

After Ezubao shut down, regulators published draft rules for the sector, which would bar P2P companies from offering lenders any guarantees, or using their money to fund the platforms' own projects.

Ezubao was in business for only 18 months but advertised heavily on CCTV and even on the seat backs of the nation's bullet trains.

Ding Ning, chairman of Ezubao's parent firm Yucheng, bought president Zhang a pink diamond ring and dressed secretaries in designer brands such as Louis Vuitton, Gucci, Chanel and Hermes, media reports said.

When company executives realised police were closing in, they buried financial documents several metres deep in the ground near the corporate headquarters in the eastern province of Anhui. It took police 20 hours to dig them out with two excavators.

Some investors also feel as if they are trapped in a hole.

"There are no updates on the case from the government and we are in the dark," said Xing Ke, an investor in the southern city of Guangzhou who lost more than 600,000 yuan.

"It's like dropping into a black hole, there is nowhere you can turn for help."

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