Chinese Wealth Manager Claims $490 Million Fraud Behind Missed Repayments

(Bloomberg) -- Noah Holdings Ltd., one of China’s largest wealth managers, levied accusations of fraud against Camsing International Holding Ltd., the Hong Kong-listed company that said last week its chairman had been detained by police.

The asset manager has filed a lawsuit and reported Camsing to regulators in relation to a 3.4 billion yuan ($490 million) asset management product that’s in danger of default, Wang Jingbo, Noah’s chief executive officer and co-founder, said in an internal memo on Monday that was obtained by Bloomberg News. The product’s duration will be extended by as much as one year to ensure repayment, Wang said in the memo, the contents of which were confirmed by a spokeswoman.

Camsing, a conglomerate with businesses spanning entertainment and health care, saw its stock plunge 80% in Hong Kong on Monday after the company said Chairman Lo Ching was being held in criminal custody by the Shanghai police. Noah’s shares fell 20% in New York after it said some credit funds managed by one of its affiliates provided “supply chain financing involving third-party companies related to Camsing.”

A representative who answered the phone at Camsing’s office in Hong Kong declined to comment. The stock fell another 27% on Tuesday.

Chinese investors have seen a slew of recent frauds involving listed companies, including false financial reporting by drugmaker Kangmei Pharmaceutical Co. and fake profits at laminating-film maker Kangde Xin Composite Material Group Co. The incidents are adding to an already stressed credit market: Bonds from at least 56 Chinese companies totaling $40 billion face repayment pressure, according to company and ratings firm statements compiled by Bloomberg.

The incident “could significantly hit investor confidence, especially given current high macro-economic uncertainty and low risk appetite among clients,” Citigroup Inc. analysts led by Daphne Poon wrote in a note published on Tuesday.

The underlying assets of the product are backed by accounts payable from Beijing JD Century Trade Holdings Ltd. to Camsing, Wang said in the Noah memo. In a statement on Tuesday, JD.com, JD Century Trade’s parent, denied any involvement.

“Camsing falsified JD.com’s business contracts, engaging in fraudulent behavior,” a spokeswoman said by email. “We are shocked that this occurred and have been cooperating with the police on this issue.”

In a statement on Tuesday, Noah said it had also sued JD.com, the online marketplace operator that Noah said had a longstanding relationship with Camsing. In response, JD.com said the lawsuit was “unmerited” and “severely impacted” its reputation.

Citi’s analysts said that downward pressure on the economy could have contributed to the alleged fraud at Camsing. The company has worked with Noah for three years and previously had a good track-record, they said, with more than 6 billion yuan of asset management products having matured and been paid back.

Shanghai-based Noah, which directly managed about $25 billion in assets at the end of March, has obtained additional shares of Camsing and its affiliates as collateral, Wang said in the memo. A Chinese court has frozen Camsing’s stock and bank accounts, she said, without providing more details.

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--With assistance from Zheping Huang.

To contact Bloomberg News staff for this story: Evelyn Yu in Shanghai at yyu263@bloomberg.net;Jun Luo in Shanghai at jluo6@bloomberg.net

To contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net, Charlie Zhu

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