Kingold Jewelry, the Nasdaq-listed company that used fake gold bars to obtain loans in China, said it is under investigations in its home country after the Chinese government declared zero tolerance for financial fraud to head off a US law for kicking fraudulent Chinese companies out of US markets . An investigation is under way in Wuhan, where the producer of household ornaments and jewellery is based, Kingold said in a filing to the US Securities and Exchange Commission, without elaborating. The company allegedly used 83 tonnes of gilded copper, passing them off as gold, to secure 20 billion yuan (US$2.9 billion) of loans from more than a dozen Chinese financial institutions. Kingold’s unfolding scandal, the second since Luckin Coffee’s US$310.7 million accounting fraud in April, has shaken investor confidence of US-listed Chinese companies. Luckin Coffee’s chairman was sacked and a liquidator was appointed to salvage the company. Some US politicians have seized the opportunity – amid an election year in the US – to legislate for the expulsion from US capital markets of all Chinese companies that refuse to have their accounts audited by US overseers. Kingold said it had been served with default notices on about 10 billion yuan of loans, as the adequacy and integrity of the “gold” assets used to secure those borrowings are in dispute. The company and its chairman Jia Zhihong have also been involved in several legal proceedings related to loan disputes with lenders. As a result, all of Kingold’s bank accounts have been frozen, according to the filing. Kingold’s “operations have been significantly impacted” by the series of events, it said, after its business deteriorated as result of production suspension over the Covid-19 pandemic. The company, located at the first epicentre of the coronavirus outbreak in China, had to halt production from January to early April as Wuhan was placed under a lockdown. It was only able to resume operations on a much smaller scale after restrictions were lifted, with factory headcount shrinking to about 60 from several hundred, according to the filing. The company only relaunched customised production, a business segment that contributed marginal revenue in the past. On top of it, some customers were also behind their payment. As a result, the company had to borrow funds to pay employee salaries, it said. Kingold planned to establish a committee of the board to oversee an internal investigation into the controversy over the gold bars, but was subsequently unable to hire advisers to do so because all bank accounts had been frozen. The company also received two notices from the Nasdaq stock exchange in recent weeks to demand it to submit overdue financial reports for the first quarter of 2020 and the last quarter of 2019. Failure to hand in the reports could lead to forced delisting. Some investors of Kingold’s shares have filed a class-action lawsuit against the firm for fraud in New York. Kingold’s stock price has plunged 55 per cent to US$0.46 on Wednesday since late June when the scandal broke out.