Chinese Jeweller listed on NASDAQ sued for using Fake Gold as collateral

Kingold Jewellers Inc. is being sued for using fake gold as collateral when securing loans of around $2 billion. It is listed on the NASDAQ stock exchange.

By · Aug 10, 2020 . 5min read

China Fake Gold case
Photo by Michael Steinberg from Pexels

Lawfirms are bringing suits against a Chinese jeweller who used fake gold as collateral. Kingold Jewelry Inc. has allegedly used 83 tonnes of fake gold to secure loans worth $2 billion in China. The company is based out of Wuhan.

Kingold sent out a notice to NASDAQ explaining to the exchange that it had received default notices totalling $1.44 billion from seven different lenders. Lenders eventually caught on to the fact that the bars of gold were fake. Gilded copper alloy is what the bars were. The Shanghai Gold Exchange has ended the company’s membership. Chinese authorities are launching fraud investigations into the jeweller.

Reaction on outburst of Fake Gold

Kingold’s stock price fell by 24% after the report became public. Various groups have filed lawsuits against the company. In New York, the Rosen Law Firm filed a class-action lawsuit against CEO Jia Zhihong and CFO Bin Lau. Other law firms bringing cases against the jeweller include Pomerantz and Bronstein, and Gewirtz and Grossman. The firms allege that the company made misleading statements about its operations between March 15th 2018 and June 28th. The suits also claim that the company failed to disclose that it could be vulnerable to lawsuits from creditors and that it could be delisted from the Shanghai Gold Exchange.

Kingold, in a filing with the US SEC, declared that its operations “have been significantly impacted by the disclosed loan defaults, related loan disputes, various legal proceedings and the resulting freezing of bank accounts.”

The Chinese Supreme Court last week passed a judgement that protects small investors. Small and medium investors have an avenue through which they can reclaim their losses from large companies in the case of fraud.

The China Banking and Insurance Regulatory Commission noted that the case with Kingold involves incompetence on a system-wide basis. “A number of banking, insurance and trust institutions were involved in the Wuhan Kingold Jewelry fake gold incident. Other than the problems associated with the company itself, the incident also revealed that the internal controls and risk management of some financial institutions were empty shells.”

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