Kingold Jewelry Sued for Allegedly Using Fake Gold for Loans

Kingold Jewelry, a Chinese jewelry manufacturer that is listed on Nasdaq, is being sued for possible violations of securities laws after a local business publication accused the company of using fake gold bars to obtain bank loans.

Kingold, based in Wuhan province, sells 24-karat gold jewelry and Chinese ornaments primarily to Chinese retailers. The company premiered on Nasdaq with a reverse merger in 2010 and announced an initial public offering in 2011.

The suit, filed Tuesday in New York federal court by purported stockholder Rajani Chitturi, claimed that the company’s stock fell 24% to 85 cents a share, after Chinese media outlet Caixin alleged that it used “gilded copper,” disguised as gold, as collateral to obtain $2 billion in loans from banks.

The case, which seeks class-action status, charged Kingold executives with “misleading” authorities in its public statements that its loans were backed with gold.

According to the report in Caixin: “The fake gold came to light in February when Dongguan Trust Co. Ltd. set out to liquidate Kingold collateral to cover defaulted debts. Dongguan Trust said it discovered that the gleaming gold bars were actually gilded copper alloy.”

It added: “China Minsheng Trust Co. Ltd., one of Kingold’s largest creditors, obtained a court order to test collateral before Kingold’s debts came due. On May 22, the test result returned saying the bars sealed in Minsheng Trust’s coffers are also copper alloy.”

Other lenders now also suspect wrongdoing, and authorities are currently investigating, it said.

Caixin reported that chairman Jia Zhihong “flatly denies” using fake gold.

“How could it be fake if insurance companies agreed to cover it?” the news service quoted him as saying.

Otherwise, the company does not appear to have commented publicly on the allegations, on either its website or in its filings with the Securities and Exchange Commission. Its listed media contacts did not return JCK‘s requests for comment by publication time.

(Image courtesy of Kingold Jewelry)

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JCK News Director