Fake bank guarantees in HKMEx case baffle financial analysts

The alleged discovery of fake bank guarantees during the police investigation into the collapse of the Hong Kong Mercantile Exchange has baffled financial analysts.

Hong Kong police have arrested at least five people in their investigation into the failure of the HKMEx, with at least four suspected of possessing "false financial instruments".

A 35-year-old woman surnamed Zheng was arrested on Sunday on suspicion of possession of the false instruments, according to the Police Public Relations Branch. The arrest followed the appearance in court last week of three mainland men - Dai Linyi, Li Shanrong and Lian Chunyan - on charges of possessing false documents purporting to show they possessed or had access to billions of Hong Kong dollars, including letters of guarantee and proofs of funds purportedly issued by HSBC and Standard Chartered Bank.

False financial instruments in Hong Kong were not uncommon, said John Bruce, Macau director of Hill & Associates, a Hong Kong risk consultancy, but were almost always detected, given the city's sophistication. "So you have to wonder what these mainlanders stood to gain from these false instruments, which in all likelihood were going to be detected," he said.

The HKMEx gave up its trading licence earlier this month after failing to attract sufficient revenue. Its founder and largest shareholder, Executive Councillor Barry Cheung Chun-yuen, stepped down from his public posts on Friday after police asked him to help in their investigation.