Chinese Gold Fraud

One of China’s largest gold jewelry makers was hoping its bankers would believe all that glitters is gold. But, when one of the banks closely examined some of the golden bars it had received as collateral, it discovered the bars were actually copper alloy coated with gold.

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In a $2.8 billion scandal, Wuhan Kingold Jewelry, which is listed on the Nasdaq Stock Market, allegedly presented fake gold bars as collateral to more than a dozen Chinese financial institutions, primarily trust companies, according to the Chinese Caixin news service. The news sent Kingold’s stock plummeting more than 40 percent over two days.

The company had borrowed 20 billion yuan ($2.8 billion) using 83 tons of gold bars as collateral. 

According to Caixin, Dongguan Trust Company Ltd. planned to liquidate Kingold’s collateral to pay for defaulted debts when it discovered the bars were gilded copper alloy. That led China Minsheng Trust Company, one of Kingold’s largest creditors to seek a court order to test its collateral, which resulted in the discovery that the bars held in its vaults were copper alloy.  Two other creditors have learned their bars were also fakes. 

Minsheng Trust told Caixin it confronted Kingold’s Chairman Jia Zhihong, a former officer with the Chinese military, who claimed the bars were not fabricated but were bars of low purity gold the company had acquired years ago. 

In an interview with Caixin, Jia denied the bars were fake. “How could it be fake if insurance companies agreed to cover it?” he said, referring to insurance policies that also served to cover the loans.  Jia refused to answer further questions from Caixin. 

The Shanghai Gold Exchange, a self-regulatory industry association, suspended Kingold as a member in late June.

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