China economy

An IT firm gave millions to ‘China’s Warren Buffett’ – now he’s missing

Shenzhen-listed company scrambling to explain to regulators how it lost track of US$75 million given to private equity firm

PUBLISHED : Saturday, 02 December, 2017, 9:31am
UPDATED : Saturday, 02 December, 2017, 9:10pm

A listed “information security” company in China has shocked its investors after admitting that it had put 500 million yuan (US$75 million) into a fund where the managers appear to have disappeared with the money.

Nationz Technologies, a producer of the chips used in Chinese ID cards, said in a two-page filing on the Shenzhen Stock Exchange website on Wednesday that it had invested the money with Shenzhen Qianhai Khan Fund Management, whose founder once compared himself to billionaire US investor Warren Buffett.

On Tuesday night, it discovered that the fund’s Shenzhen and Beijing offices were empty and it could not contact any of the managers.

The hi-tech company said it had reported the case to the police.

Because the loss of the funds is likely to affect its bottom line, it announced on Wednesday that it had decided to suspend trading in its shares on the Shenzhen market for five working days.

The 500 million yuan investment was the equivalent of its combined earnings since 2008. Nationz Technologies reported profits of 101 million yuan in 2016 and 50 million yuan in the first three quarters of this year.

On Thursday night the Shenzhen Stock Exchange sent a letter to the company demanding answers by Monday about how it carried out due diligence into the fund and why it was so confident that it would deliver high returns.

The case shocked many retail investors in the firm, which makes chips to improve information security.

“Even the most advanced chip security technology can’t resist temptation,” one comment left in an online forum hosted by the East Money Information Company said.

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Another criticised the company for raising money from investors and investing it in products that apparently offered easy returns. “Those who made the decisions should be liable for the losses,” the comment read.

The founder of Shenzhen Qianhai Khan Fund Management, Eric Dai Xuefeng, has a high profile as an investor in the health care industry and once told the private equity portal he wanted to be seen as a “Chinese Warren Buffett”.

Dai’s fund was also the first Chinese private equity fund to act to support Beijing’s efforts to stop the stock market rout in July 2015, with Dai telling Shanghai Securities News he planned to invest a total of 200 million yuan from his management funds to buy medical stocks.

In the latest post on his blog on October 11, Dai posted images from the film The Shawshank Redemption, an Oscar-nominated movie about former banker’s escape from prison.

Company registry information showed that Dai had transferred his controlling stake of 99 per cent in the Qianhai Khan Fund to a colleague in August.

On September 19, Dai wrote on his blog that he had obtained a US green card.

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Calls to the registered phone numbers of Qianhai Khan Fund and its Beijing office found the numbers were out of service. Dai did not reply to messages sent to his social media accounts.

While it is not uncommon for retail investors to lose money in questionable funds, it is rare for a listed company to put a large sum into a fund without third-party custodian services to hold securities to minimise their risk – as happened in this case.

An investor relations officer from Nationz said on Friday that the police were investigating the case and the company would issue updates on how the investigation was progressing.

A previous 200 million yuan investment by Nationz in a fund run by Shenzhen Qianhai Khan Fund Management in November 2014 laid the groundwork for the joint venture at the centre of the present investigation.

It it said in a statement two years later that it had received principal and promised returns.

In September 2015, a financial arm of Nationz set up a joint fund with a Beijing-based subsidiary of Shenzhen Qianhai Khan Fund Management.

Nationz contributed all the money – which initially totalled 300 million yuan – but had no involvement in its management. Qianhai Khan Fund ran the fund’s daily operations.

In 2016, Nationz added another 200 million yuan to the fund. At the end of last year, the company announced that the fund had delivered a dividend of 50 million yuan.

The Shenzhen Stock Exchange has asked Nationz to provide a detailed account of its net losses.