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On May 28, the Intermediate People's Court of Wuhan City, Hubei Province, publicly pronounced a first-instance verdict on the case involving Wuhan Jinhuang Jewelry Co., Ltd. (hereinafter referred to as Wuhan Jinhuang), Wuhan Jinhuang Industrial Group Co., Ltd., Hefei Boyin Investment Consulting Co., Ltd., and 18 other defendants including Jia Zhihong for contract fraud, loan fraud, illegal loan issuance, bribery of non-state officials, bribery of non-state officials, embezzlement, and counterfeiting of registered trademarks.

Financial institutions played a key role in this 20 billion fake gold fraud case. Most of them became victims, but some also played inglorious roles.

How was such a huge loan project approved? Why did the financial institutions, which always emphasize risk control, fail to discover the "fake gold" before lending? The first-instance information of one of the financial institutions provides a lot of footnotes.

Before the verdict of the "10 billion fake gold case", as early as December 2023, Chen Ying, then general manager of Dongguan Trust Co., Ltd. (hereinafter referred to as Dongguan Trust), was prosecuted and sentenced to 14 years and 6 months in prison and a fine of 200,000 yuan by the Dongguan First People's Court for "illegal lending" in the first instance (Dongguan Trust loaned 3.4 billion yuan to Wuhan Jinhuang, and currently 2.866 billion yuan has not been repaid).

The verdict obtained by The Paper stated that Chen Ying, who joined Dongguan Trust in December 2018, "personally pushed forward the issuance of three loans with Wuhan Jinhuang, including in August and September 2018 and January 2019, against all odds and in violation of national regulations," by participating in relevant meetings. This was a manifestation of his personal will, and he was held criminally responsible for committing a crime committed by a natural person.

Chen Ying appealed in court and the case is currently being heard by the Dongguan Intermediate People's Court.

Wuhan Jinhuang's former partner "brought the project" to Dongguan Trust

The verdict obtained by The Paper shows that the Dongguan City No. 1 District People's Procuratorate believes that in June 2018, the defendant Chen Ying was intended to be the general manager of Dongguan Trust Co., Ltd. (he actually started working on December 25, 2018, and the Guangdong Banking and Insurance Regulatory Bureau (Guangdong Banking and Insurance Regulatory Bureau Reply [2018] No. 21) approved his qualifications as general manager), and introduced the Wuhan Jinhuang financing project to Dongguan Trust. Later, Dongguan Trust and Wuhan Jinhuang signed a cooperation agreement, and on August 10, 2018, September 26, 2018, and January 23, 2019, respectively, they carried out financing with the projects "Taixin", "Dingxin" and "Hongxin". Wuhan Jinhuang provided the corresponding amount of gold as collateral for the loan, and the Wuhan Branch of China People's Property Insurance Company (Group) Co., Ltd. (hereinafter referred to as PICC Wuhan Branch) insured the quality and weight of the pledged gold, and successively issued loans of 1 billion yuan, 1.6 billion yuan and 800 million yuan, totaling 3.4 billion yuan.

In response, Chen Ying denied introducing Wuhan Jinhuang in an appeal, saying that the project was introduced by Cheng Wanli.

The Paper saw that in the Chen Ying case, Cheng Wanli was described as a "member of Chen Ying's team" (he was investigated in a separate case for economic crimes).

Public information shows that in 2007, Changan Trust introduced Cui Jincai, a former senior executive of CITIC Bank, as president; after Cui Jincai took office, a number of former CITIC Bank members joined Changan Trust, including Vice President Chen Ying and Wuhan Company General Manager Cheng Wanli.

Cheng Wanli and Jia Zhihong, the actual controller of Wuhan Jinhuang, have known each other for a long time. Here we have to talk about the Wuchang Fish placard incident in 2016.

A person from Changan Trust told The Paper, "In 2016, Jia Zhihong wanted to acquire Wuchang fish, and Changan Trust also wanted to make a difference in the secondary market at that time. The two parties plus the Yichang government established Changjin Investment, mainly to bid for Wuchang fish, and Cheng Wanli was the manager sent by Changan Trust."

"After raising the stakes, Jia Zhihong was targeted by Zhongrong Trust and suffered a loss of 129 million yuan. He was also fined 5.4 million yuan by the China Securities Regulatory Commission. At this time, Jia Zhihong began to raise large amounts of funds from Changan Trust by pledging gold," said the above person.

In 2017, Changan Trust provided Jinhuang Jewelry with a policy pledge financing of 1.2 billion. Available data shows that Changan Trust issued the Changan Trust Jinhuang Jewelry Loan No. 2 Collective Fund Trust Plan and the Changan Trust Jinhuang Jewelry Loan Collective Fund Trust Plan, as well as the Changan Ning-Jinhuang No. 3 Loan Collective Fund Trust Plan of up to 1 billion yuan. According to the introduction of the first two products, both funds raised were used to supplement daily working capital, and both were statically pledged with gold. During the pledge period, no inventory check or unpacking was allowed.

"In early 2018, Cheng Wanli contacted Dongguan Trust and discussed market-based recruitment. During this stage, Cheng Wanli introduced the Wuhan Jinhuang project to Dongguan Trust," said the above-mentioned Changan International Trust person.

Chen Ying stated in the appeal, "The testimonies of Cheng Wanli, Huang Xiaowen (former chairman of Dongguan Trust) and others all confirmed that I did not introduce the project. After the first loan was completed, I had not yet (officially) joined the company."

Accused of "overcoming all objections" and forcing the issue

In June 2018, Chen Ying was proposed to be appointed as the general manager of Dongguan Trust.

In July 2018, Dongguan Trust and Wuhan Jinhuang signed a 5.2 billion yuan financing strategic agreement.

The public prosecutor believes that Chen Ying was formally appointed as the general manager of Dongguan Trust Company and performed his duties before the third loan, leading the modification of the gold verification plan and approving the loan business. Of course, he should bear criminal responsibility for the third loan of 800 million yuan. Although Chen Ying only entered Dongguan Trust Company and was intended to be the general manager during the first and second loans and did not formally perform his duties, since the Wuhan Jinhuang project was recommended and introduced to Dongguan Trust by Chen Ying's team, Chen Ying was already the intended general manager during the first and second loans. According to the testimony of relevant personnel of Dongguan Trust, it can be confirmed that Chen Ying actively promoted the issuance of loans and communicated and coordinated with Wuhan Jinhuang Company during the first and second loans, and expressed his position in the relevant meetings to promote the Jinhuang project. Therefore, Chen Ying should also bear the corresponding criminal responsibility for the amount of the above three loans.

The verdict pointed out that the illegal lending in this case was mainly reflected in Chen Ying's personal efforts to push forward the loan business with Wuhan Jinhuang Company against all odds and in violation of national regulations. This was a manifestation of personal will. Dongguan Trust, as an organization, did not have the subjective intention to illegally lend money, and the illegal lending did not reflect the will of the organization. It should not be identified as a corporate crime, and the defendant Chen Ying should be held criminally responsible for a crime committed by a natural person.

The reporter tried to interview Dongguan Trust and Dongguan Intermediate People's Court separately about this judgment, but both parties refused to be interviewed.

An executive in the trust industry told The Paper, "Issuing loans in the trust industry is an extremely complicated process. First, the salesperson in the business department discovers clues and reports them to the department. If there is no other negative news, with the company's consent, the salesperson begins to conduct due diligence in accordance with company regulations. After a complete report is formed, it is submitted to the company's risk control department for review. The risk control department's review has two procedures: one is the personal preliminary review by the risk control specialist, and the other is the review by the risk decision-making committee (chaired by the president or the vice president of risk control, and members include professionals, compliance departments, risk control departments, etc.). All members must express their opinions, and the final decision is made by majority vote. At the same time, based on the size of the project, for example, if it exceeds 300 million (it is different for each company), it must be discussed at the president's office meeting and then submitted to the board of directors for discussion and voting."

The executive said, "From an industry perspective, Chen Ying's time at Dongguan Trust did not even count as a probation period from the time he resigned (from Changan Trust) in May to the time he officially joined the company in December. It is not possible for him to make decisions in the company under such circumstances."

In response, Chen Ying pointed out in a handwritten appeal that of the three loans involved in the case, he had not yet joined the company and was not a staff member of Dongguan Trust. Although he had joined the company for the second loan, he was not the general manager and was not responsible for specific work. When the first and second loans were issued, the Dongguan Trust staff who raised questions never reported to him... "I never participated in the discussion with the staff and the coordination with PICC to modify the verification process for the first and second loans (I did not participate due to my identity)." Chen Ying said.

Regarding the third loan, Chen Ying said: "Based on the overall will of Dongguan Trust and the opinion of Chairman Huang Xiaowen, I was delegated by Huang Xiaowen to go to Wuhan to convene a meeting of personnel in Wuhan and collectively discuss and approve the revision of the "Discussion Draft". Based on the reasonable trust in PICC's insurance policies and respect for the independence of PICC as a third-party institution, the "Discussion Draft" plan involving the supporting link of gold pledge verification, which should be mainly responsible by PICC, was adjusted in accordance with the actual situation and responsibility distribution, and the third loan was issued in accordance with the established resolution."

Chen Ying is one of the two trust company personnel who were sentenced for "illegal lending" in the Wuhan Jinhuang case. In the case sentenced by the Wuhan Intermediate People's Court on May 28, Hu Zhijun, the former business director of the Shanghai Business Department of Northern International Trust Co., Ltd., was sentenced to eight years in prison for the crimes of bribery and illegal lending.

People who participated in the trial told The Paper that the fact that Hu Zhijun was found guilty of by the court was that the handover method agreed upon by Wuhan Jinhuang and Northern International Trust was warehouse-to-warehouse. After the gold was withdrawn from the warehouse of the gold exchange, it was directly sent to the bank's safe depository. This required Hu Zhijun to follow the car, but during the actual transportation process, Hu Zhijun lost the car and concealed it, so he was found to have "illegally issued loans."

Hu Zhijun appealed the verdict in court.

Risk control personnel twice raised risks in the testing process

It can be seen from Chen Ying's verdict that financial institutions do have doubts about the gold pledge model. Dongguan Trust's risk control personnel have questioned the testing process twice.

The "gold + insurance policy model" is the main reason why many financial institutions are deceived.

In terms of operational procedures, Wuhan Jinhuang stores the pledged gold in a bank safe deposit box, but the key and password of the safe deposit box are controlled by the trust institution. Therefore, Wuhan Jinhuang proposes that all gold pledges must be insured by insurance companies. This is how the insurance company insures the weight and quality of the pledged gold.

It is understood that both PICC Wuhan Branch and PICC Property and Casualty Insurance Hubei Branch were involved. Zou Dachun, general manager of PICC Wuhan Branch, has been sentenced for collusion between internal and external parties and suspected loan fraud.

Despite the guarantee from the insurance company, Dongguan Trust also made a special agreement with PICC Wuhan Branch because of the huge amount.

The insurance company's policy shows that Dongguan Trust has expanded and supplemented the scope of insurance liability, stipulating that "if the quality and weight do not conform to the provisions of the insurance policy and this special agreement list, it shall be deemed that an insurance accident has occurred" and adding the clause "When an insurance accident occurs, the insurer shall not refuse to assume insurance liability on the grounds that the insured did not truthfully inform the insured of the quality and weight of the gold before taking out the insurance."

This may mean that even if there was a possibility that Wuhan Jinhuang concealed the truth that the gold was fake and committed loan fraud, the insurance company would still have to face compensation.

The public prosecution agency mentioned in the verdict that before the above-mentioned first loan of financing funds was released, Dongguan Trust had raised objections to Wuhan Jinhuang's repayment ability and the authenticity of the pledged gold, and held a project risk meeting to discuss the matter. At the meeting, Chen Ying answered questions about the risk issues to the participants.

In early August 2018, Dongguan Trust was handling the corresponding gold pledge procedures for the first 1 billion yuan financing with PICC Wuhan Branch and Wuhan Jinhuang. During the initial and re-inspection of the gold, Dongguan Trust's risk control personnel raised risks in the inspection process. Chen Ying stated at the discussion meeting that the company should continue to promote the project if it could not prove that the pledged gold was fake. Dongguan Trust then issued a loan of 1 billion yuan to Wuhan Jinhuang.

In September 2018, Dongguan Trust, PICC Wuhan Branch and Wuhan Jinhuang handled the gold pledge procedures for the second financing amount of 1.6 billion yuan. During the gold pledge inspection, Dongguan Trust’s risk control personnel discovered that the pledged gold was suspected of being swapped, so they prepared a report to the company and requested another re-inspection.

After Chen Ying communicated with Wuhan Jinhuang, Wuhan Jinhuang provided gold for re-inspection (it was not the gold pledged for the loan, and the test result was real gold). Chen Ying believed that the pledged gold was insured by PICC Wuhan Branch, and the insurance policy was valid, so the project should continue to be promoted. Later, Dongguan Trust issued a loan of 1.6 billion yuan to Wuhan Jinhuang.

In December 2018, Chen Ying was officially appointed as the general manager of Dongguan Trust and took up his duties.

The public prosecutor believes that on January 14, 2019, Dongguan Trust personnel went to Wuhan to discuss the gold pledge process with Wuhan Jinhuang and PICC Wuhan Branch. PICC Wuhan Branch could not cooperate with Dongguan Trust to implement the new gold verification plan on the grounds that the inspection regulations had been modified. On January 16, 2019, Chen Ying was arranged by Dongguan Trust to go to Wuhan to deal with the problem of not being able to implement the new gold verification plan, and held a discussion meeting at Dongguan Trust Wuhan Business Department. When Dongguan Trust staff insisted on the company's new gold verification plan, Chen Ying instructed staff to implement the opinions put forward by PICC Wuhan Branch, modify the company's "Gold Pledge Process and Subsequent Management Plan (Discussion Draft)" to be implemented, simplify the entire gold verification process, and sign and approve the Dongguan Trust "Trust Business Approval Form", which facilitated the release of the third financing of 800 million yuan.

This is also a reflection of the public prosecution agency's view that Chen Ying "overcame all objections."

Four "firsts" in the scam

The first-instance judgment stated that Chen Ying "ignored national laws, violated national regulations, failed to fulfill prudent obligations, and failed to conduct strict examinations of the collateral, resulting in Dongguan Trust issuing a loan of 3.4 billion yuan to Wuhan Jinhuang."

It should be pointed out that Dongguan Trust was the first financial institution to detect problems with the gold pledged by Wuhan Jinhuang.

In late December 2019, due to Wuhan Jinhuang's default on interest payments for that month, Dongguan Trust announced that all of Wuhan Jinhuang's loans were due early and submitted an application for compulsory execution to the Wuhan Intermediate People's Court. In February 2020, Dongguan Trust randomly selected one of the 1kg gold bars pledged by Wuhan Jinhuang for testing. The inspection results showed that the gold bar was fake gold. Although the surface of the gold bar was gold-plated, the internal composition was copper alloy, not Au999.9 pure gold.

Chen Yingfang's attorney told The Paper that "there is evidence that under Chen Ying's leadership, Dongguan Trust achieved four firsts in this scam: the first to discover fake gold, the first to claim compensation from PICC, the first to sue PICC, and the first to file a criminal complaint."

On March 26, 2020, PICC Property and Casualty Insurance Co., Ltd. officially received a "Civil Complaint" from the Dongguan Intermediate People's Court. The plaintiff was Dongguan Trust Co., Ltd., and the defendants were PICC Property and Casualty Insurance Co., Ltd. and PICC Property and Casualty Insurance Wuhan Branch. Since then, many other financial institutions have filed similar lawsuits.

On July 6, 2021, the Wuhan Intermediate People's Court ruled to suspend the trial of the insurance lawsuit on the grounds that the insurance policy in question was related to the criminal offense that Jia Zhihong was suspected of.

With the verdict of the "Wuhan Jinhuang" case, whether the above-mentioned lawsuit will continue, an executive of a financial institution involved in the case told The Paper that the institution is still waiting for notification from the Wuhan Intermediate People's Court.

A legal expert believes that "according to the contract between Dongguan Trust and PICC, the principal and interest of Dongguan Trust should be guaranteed. If the judicial authorities determine that Chen Ying has committed the crime of illegal loan issuance, it is equivalent to admitting that Dongguan Trust, Chen Ying and others have legal faults in the formation of the gold pledge loan contract with Wuhan Jinhuang. According to relevant legal provisions and the logic of the Supreme People's Court's case No. 61 (2018), it may directly affect the insurance company's claim liability determination and the recovery of credit funds, which will damage the actual interests of Dongguan Trust."

Many trusts choose to pay

On June 30, 2020, Dongguan Trust issued a "Letter to Investors" to explain its original intention and subsequent disposal of the Wuhan Jinhuang financing project. The company stated, "Dongguan Trust coordinated institutional funds to enable investors to exit on schedule" and that "in the 33 years of business, it has achieved 100% liquidation of products."

The 2019 financial report released by Dongguan Trust showed that Dongguan Trust achieved operating income of 744 million yuan and net profit of 77 million yuan for the whole year, down 35.93% and 85.09% year-on-year respectively. At the same time, the annual report showed that the company's own cash and cash equivalents were 338 million yuan.

Another document obtained by The Paper shows that Dongguan Trust transferred the beneficial rights of three Jinhuang Jewelry projects to the "Dongguan Trust Jinxin Collective Fund Trust Plan" between February and May 2020.

Like Dongguan Trust, many companies chose to redeem the trust products involving "Golden Phoenix". For example, Minsheng Bank once stated that "Minsheng Trust has coordinated the support of major shareholders to redeem the investors' funds that have matured"; Changan International Trust became the third company to choose to redeem.