Nasdaq-listed company sued for backing $ 2 billion loans with 83 tons of fake gold
The Nasdaq-listed company that allegedly used 83 tonnes of fake gold bars as collateral to secure loans worth around $ 2 billion from several financial institutions in China is now in default and faces multiple claims collectives.
Fake $ 2 billion gold program comes to light
The gold industry was recently rocked when it was discovered that a US-listed company allegedly used 83 tonnes of fake gold bars to secure loans worth $ 2 billion in China. Kingold Jewelry Inc. is based in Wuhan, China, but is listed on the Nasdaq in the United States under the ticker symbol KGJI.
Following fake gold news, Chinese jeweler told Nasdaq in a filing that he had received default notices of around RMB 10 billion ($ 1.44 billion) from seven Chinese lenders . These loans were backed by gold bars found in a gilded copper alloy. The Shanghai Gold Stock Exchange (SGE) also terminated Kingold’s membership and Chinese authorities have launched a fraud investigation against the company.
In addition, a number of lawsuits have been filed against Kingold, with the company’s stock price falling 24.11% on June 29 following the false gold reports. A class action lawsuit has been filed by The Rosen Law Firm in the United States Court for the Eastern District of New York for violation of federal securities laws. He names Kingold, its chairman Jia Zhihong and former CFO Bin Liu as defendants, claiming they were fraudulently exploiting the company and deceiving investors.
Law firms Pomerantz and Bronstein, Gewirtz and Grossman have also filed a class action lawsuit against Kingold, its CEO and former CFO. The complaint alleges that between March 15, 2018 and June 28, the company made materially false or misleading statements about its operations, in particular about the use of “fake gold as collateral to fraudulently secure loans.” He also failed to disclose the material consequences that “the company would face lawsuits against its creditors and be delisted from the Shanghai Gold Exchange,” described the Pomerantz law firm.
In a July filing with the U.S. Securities and Exchange Commission (SEC), Kingold said its operations in Wuhan “have been significantly affected by disclosed defaults, loan disputes, various legal proceedings. and the resulting freezing of bank accounts ”. Additionally, the company’s jewelry production was halted between January and early April due to the covid-19 outbreak and the Wuhan lockdown.
To help small investors in China recoup investment losses from large companies, the Chinese Supreme Court last week gave the green light to a landmark class action system for retail investors. The system will be a “convenient and inexpensive complaints channel” for small and medium investors and will act as a powerful deterrent for financial criminals, the Supreme Court reportedly said in a statement.
Chinese market regulators are investigating Kingold Jewelry’s fake gold claim, calling for tighter risk management. “A number of banking, insurance and trust institutions were involved in the Wuhan Kingold Jewelry fake gold incident,” the China Banking and Insurance Regulatory Commission said. “Besides the problems with the business itself, the incident also revealed that the internal controls and risk management of some financial institutions were empty shells.”
What do you think about Kingold using fake gold as collateral? Let us know in the comments section below.
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