How Did One Gold Stock Pull Off A Near $3 Billion Fraud Scheme?
With gold prices reaching levels not seen since 2011, it’s no wonder why investors are turning toward the shiny metal. The market value of gold has now jumped above $1,800. Even in spite of price pulling back in July, gold hasn’t lost its luster. Amid all of this hype and market speculation, companies are taking full advantage of the unbridled excitement fueling prices right now.
While most companies would use this to invest in new gold mining operations, expand on current projects or even enhance production, one gold company decided to pull a fast one. Kingold (KGJI Stock Report) is one of China’s largest gold jewelry manufacturers according to reports. Apparently there’s more than just COVID-19 coming out of Wuhan right now. Kingold, a Wuhan-based company is alleged to have used fake gold bars to obtain $2.8 billion in loans. It’s a case of misrepresentation and putting on a great front for lenders. The company apparently used 83 tons of gold bars for collateral of the loans.
While that isn’t the problem, what is comes from the bars themselves. They weren’t gold! Mainland Chinese financial news outlet Caixin explained that the “gold bars” were actually gilded copper. Caixin said that this was one of the largest gold loan fraud cases China ever saw. Now, these loans didn’t come all at once. They were over a period of 5 years according to reports. It included at least 14 Chinese financial institutions.
Another Chinese Fraud Case To Fuel Concerns
Don’t forget that earlier this year, companies like Luckin Coffee (LK Stock Report) and even TAL Education Group (TAL Stock Report) were accused of and found to be (in some cases) inflating numbers. In the case of Luckin, specifically, this equated to hundreds of millions of dollars is fictitious figures. The US Senate passed a bill to block Chinese companies from Wall Street & requires companies to prove they aren’t owned by foreign governments. They also need to submit audits to the US Public Company Accounting Oversight Board – PCAOB.
But here’s the interesting part, February was when this was found to be fake gold. In an apparent move by Dongguan Trust to liquidate Kingold’s collateral to cover certain debts, the fraud came to light. It came as Kingold failed to pay back investors in several trust products.
“This is hardly surprising; most of the fakes we see in our business are coming out of China,” Michael Wittmeyer, a gold expert for JMBullion. “There are replica products of what we sell online, and while people pay good money, they are essentially worthless.”
It’s also alleged that the company wasn’t previous looked into because of ties its controlling shareholder had. Jia Zhihong was a former higher-up in military apparently. He served in Wuhan and oversaw gold mines at the directions of the People’s Liberation Army. Kingold was originally a gold factory in Wuhan affiliated with the People’s Bank of China.
What Happens To Kingold Stock Now?
Not like KGJI stock actually traded actively anyway, but look at a chart and you’ll see a noticeable different in price. Shares of the gold stock were more than halved from its June highs of $1.66. On July 1 shares dropped to lows of $0.60 during early morning trading as more news surfaced on this $2.8 billion fraud charge.
[Read More] Are Gold Stocks Ready For Their Next Leg?
At the beginning of June, the company’s CFO stepped down for “personal reasons”. Former CFO Bin Liu agreed to assist the new CFO to assure a smooth transition of his responsibilities. Chairman and CEO Zhihong Jia specifically stated, “During Mr. Huang’s years of service at Kingold, he has been a key contributor in the successful operations of our business, as well as leading numerous financing and business transactions.”
Considering Huang had been with Kingold since 2005, that would put him there during the time of this alleged fraud. There haven’t been any new updates regarding any involvement in this instance. But as the story develops, it would be difficult not to wonder what happens next with parties involved including Huang.
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