HKMEx Scandal Widens As 4 Officials Arrested With $1/2 B in False Bank Documents

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HKMEx Scandal Widens As 4 Officials Arrested With $1/2 B in False Bank Documents

May 25, 2013 By The Doc 2 Comments Tweet

Last weekend we broke the news to US readers that the HKMEx was closing and would cash settle all futures contracts effective Monday, 5/20.
The intrigue around the exchange’s failure exactly 2 years after it’s 2011 launch just increased substantially, as 4 high level HKMEx executives have been arrested after being found with over $1/2 billion in false bank documents.
The HKMEx founder and CEO Barry Cheung Chun-yuen is reportedly now also under investigation for his involvement in the scandal.

As the South China Morning Post reports, the HKMEx failure has turned into a criminal fraud investigation:
Three mainland men charged in a scandal over the failed Hong Kong Mercantile Exchange (HKMEx) were found in their hotel rooms with false bank documents purporting to be worth hundreds of millions of dollars, a court heard yesterday.

Dai Linyi, 65; Li Shanrong, 49, and Lian Chunyan, 50, who were arrested on Tuesday, appeared in Kowloon City Court charged with “possessing false instruments with intent”.

The men were detained after the Securities and Futures Commission found serious irregularities with the finances of the exchange – chaired by executive councillor Barry Cheung Chun-yuen – and handed the details of its inquiry to the police.
The executives were allegedly discovered with nearly $1/2 billion in notes from HSBC and Standard Chartered:
The court heard the documents included an acknowledgment letter, two letters of guarantee and three proofs of funds allegedly issued by HSBC and Standard Chartered Bank. There were also time deposits and at least one telegraphic transfer.
In a related report, founder and CEO Barry Cheung Chun-yuen resigned from his public post under Hong Kong leader Leung Chun-ying, soon after the HKMEx arrests were made:
Exco member Barry Cheung Chun-yuen stepped down from all his public posts last night after being invited by police yesterday to assist their investigation into his failed Hong Kong Mercantile Exchange (HKMEx).

His blanket resignations came as three of four people arrested in connection with the investigation appeared in court yesterday charged with possessing false bank documents purported to be worth hundreds of millions of dollars.

In a statement, Cheung, 54, said: “Although I have never done anything that breaks the law, and my passion to serve the society has not changed, I have decided to resign from all public posts in order to prevent bringing further impact to the organisations I serve.”

Academics and politicians said the case would deal a lasting blow to Chief Executive Leung Chun-ying’s administration. Cheung is widely regarded as Leung’s top aide – he acted as his campaign chairman when he ran for the city’s top job last year.

The chief executive said he had accepted Cheung’s resignation, which also covers his roles on the Urban Renewal Authority, the Standing Committee on Disciplined Services Salaries and Conditions of Service, the Commission on Strategic Development, and the Long Term Housing Strategy Steering Committee.
The fact that 4 high level HKMEx executives happened to be found together in a hotel room with $1/2 billion in notes from HSBC and Standard Chartered smells like a bankster set-up to us, but regardless, it appears that the HKMEx was likely running a massive rehypothecated gold scheme considering the anemic open interest throughout the past 2 years and at the time of the exchange’s failure.

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