Nearly 150 people who lent money to a Wenzhou-based firm in east China's Zhejiang Province are suing the local government and police, asking for compensation of more than 68.64 million yuan (US$10.9 million) for aiding illegal fundraising.

A lender showing?a voucher acknowledging that Dong Shunsheng's company had?borrowed 200,000 yuan from him.

The Taishun County government and police security bureau are accused of promoting the Liren Education Group's fundraising activities despite knowing the company was hugely in debt.

More than 7,000 individuals lent 4.5 billion yuan to the company between 1998 and 2011, China Business News reported yesterday.

According to the lawsuit filed by 147 creditors at Wenzhou Intermediate People's Court, some government officials, who had also lent money, allowed the then nearly-bankrupt company to collect more than 900 million yuan by making false promises of high returns to ensure they got their money back.

The company's boss, Dong Shunsheng, who was detained on February 3, is said to have promised annual interest of up to 60 percent to draw more money to pay earlier investors rather than apply for bankruptcy, the report said.

"He had no choice. If he had applied for bankruptcy, he would have been banned to offer priority to some key people and failed to pay their debts," an unnamed law expert was quoted as saying.

Xinhua news agency said that many of Liren's creditors were civil servants.

According to the lawsuit, this explained why the local government turned a blind eye to Liren's fundraising activities. It also alleged that, faced with Liren's alarming debt, top officials went on local television to encourage people to help the group.

More than 80 percent of the households in Taishun County became entangled in the fundraising fraud while other victims came from the neighboring Jiangsu and Fujian provinces and north China's Inner Mongolia Autonomous Region.

Dong was highly regarded in Taishun, where he made major contributions to local education. He started his business in 1998 and later developed it into a chain that had schools from kindergartens to high schools, all under the name "Yu Cai" which in Chinese means "to bring up talent," Xinhua said.

He established the Liren Group in 2003 and expanded into mining and real estate.