A firm run by China's 11th richest businessman, Zhou Zhengyi, has called in the receivers after admitting finding suspect loans at two of its subsidiaries.
Shanghai's development boom is huge
Mr Zhou himself has been under house arrest in China for about a fortnight while investigators probe loans worth millions of dollars, according to official press reports.
The scandal surrounding his business dealings has sparked press speculation of a wider crackdown on shady business dealings in Shanghai, China's showpiece commercial centre.
The company, Shanghai Land Holdings, said the "unorthodox loan transactions" amounted to 650m yuan ($78.5m; £47.4m ), Reuters news agency reported.
The Hong Kong-listed property developer said the loans were big enough to "constitute an obvious damaging risk to the business of the group", estimating they were worth about a quarter of its net asset value.
Scrutiny of loans and stock trades is getting tighter
Shanghai Land's parent company New Nongkai Global is also in trouble in Hong Kong, where its creditor Bank of China (Hong Kong) has taken control of it.
Beijing newspapers have been linking Mr Zhou's arrest to an inquiry into loans authorised by Bank of China (HK)'s ex-head Liu Jinbao, who was replaced last month.
Bank of China dropped its denials of an inquiry on 6 June to confirm that Mr Liu was being investigated over complaints of suspect loans in Hong Kong and the mainland, where he headed BOC's Shanghai business in the 1990s.
The spreading scandal is a sign of determination by Chinese regulators to crack down on illicit deals between bankers and tycoons such as the use of shell companies to obtain personal loans.
They see the task of cleaning up the banking system as vital to sustaining the country's economic boom.
The People's Bank of China said on Tuesday it had put in place its first nationwide database to help financial institutions "prevent credit risks."
The database lists four million firms and loans totalling $1.35 trillion.
This drive for better accountability has inevitably unearthed scandals.
But the inquiry into Mr Zhou's financial affairs spotlights Shanghai, leading observers to wonder if the city's cosseted status as the base of ex-President Jiang Zemin is coming to an end.
Shanghai officials may have felt safe because of links to top leaders
It is being conducted by outsiders.
"The central government doesn't trust local Shanghai officials to tell them the truth," the Wall Street Journal quoted a Chinese newspaper editor as saying.
Mr Zhou's companies are also caught up in a land allocation scandal in Shanghai. A residents' lawsuit alleges Mr Zhou acquired land cheaply through corrupt dealings with city officials, and is using force to evict them.
Shanghai Land will continue to trade in receivership. Its shares and those of Shanghai Merchants, another firm in the group, were suspended in Hong Kong on 2 June.