Noah Holdings, a Chinese wealth management firm attempting to restore trust, said its overall business will not be affected by the risk incident caused by the recent detention of the Hong Kong-listed firm Camsing International’s founder and chairwoman Lo Ching by the mainland police.
After the Camsing incident happened, Noah had reviewed all its products and did not find any similar problem in its businesses, the US-listed company told mainland media on Thursday.
At the end of the first quarter, the assets under management by Gopher Asset Management, Noah’s subsidiary, amounted to 171.1 billion yuan (US$24.9 billion), only 1.98% or 3.4 billion yuan of which were involved in the Camsing case, Noah said.
The number of products under management by Gopher was about 800, only eight products or 1% of which were Camsing-related, Noah said, adding that its business has in general remained healthy.
Noah said since its establishment it has observed legal requirements and was never involved in any illegal acts. It said all the financial products it sold were under independent custody by third-party custodians with each of its funds independent from one another. It said there will not be any chain reaction or contagion effect if any single asset has a problem.
The announcement came after Camsing said in a stock exchange filing on July 5 that its founder and chairwoman Lo Ching was held in criminal custody by the Shanghai Public Security Bureau. On July 9, Noah reportedly filed a lawsuit against Camsing to regulators in relation to a 3.4-billion-yuan asset product that is in danger of default, according to an online statement.
According to media reports, it was alleged that underlying assets related to the products were backed by accounts payable to Camsing Global from Beijing JD Century Trade Holdings Ltd, a unit of JD.com. But the e-commerce giant denied any involvement in the fundraising. It says it has been cooperating with police on the matter.
Some investors who invested in Noah’s private equity fund products have failed in their requests of early redemption, the 21st Century Business Herald reported on Thursday.
An individual investor surnamed Zhao (fake name) who bought a PE fund product through Noah kept chasing the asset management firm since he knew that Noah lost 3.4 billion yuan in a suspected fraud case related to Camsing. Zhao said he wanted to know how and when he could get back his investments. He heard that some investors had applied for early redemption of their investments but they were rejected.
If investigators find evidence that Noah has made any mistake in risk management, Noah will have to compensate its clients who lost their money in the incident, according to the media report, citing an unnamed person who works in a wealth management firm unrelated to the case.
Noah cannot file any civil claim against Camsing as Lo has been detained with criminal compulsory measures, Yang Zhaoquan, senior partner and director of Beijing Vlaw Law Firm, told Security Daily. Yang said Noah has to wait until Lo is convicted with the alleged fraud charges, he said.
As the China Securities Regulatory Commission and the Shanghai Public Security Bureau have not yet announced their investigation results, it is unclear whether the alleged illegal activities were done by an individual person, or a corporate, said Shi Yucheng, a lawyer at Beijing Youheng Law Firm. It is too broad to define the case as financial fraud as the investigating body needs to decide which criminal charge to take, Shi said. Investors can sue the convicted person or company after an investigation result is announced, Shi said.
The incident showed that Noah Holdings had risk management problems, columnist Tao Feng wrote in a commentary published by the Beijing Business Today on Thursday.
Supply chain finance is a kind of innovative financing that is aimed at turning the unmanageable risks of different corporates into some manageable risks within a supply chain, Tao wrote. However, the whole process created new risks as it involved too many different parties with complicated legal relations.
Tao said many asset management firms in China are too keen on getting commission fees by selling finance products so they may not have enough due diligence works.
Noah has not responded to Asia Times’s enquiry about the incident.
According to Noah’s latest statement, the company’s PE funds had seen four default cases over the past decade. It said three cases were resolved while the remaining one related to some assets backed by accounts payable to China Huishan Dairy is ongoing. Noah said it had spent three years to help its clients recover their money plus 30% interests in 2017 in a case related to an equity-based property fund in China.