(Yicai) Dec. 23 -- A large number of gold-themed wealth management products issued by Kinghood Holdings Group have seen widespread payment defaults since November, with the total investment funds involved preliminarily estimated at CNY70 billion to CNY80 billion (USD9.9 billion to USD11.4 billion), Yicai learned exclusively.

The defaults have drawn regulatory attention as investors report missed redemptions and mounting liquidity stress at the well-known gold jewelry processing company. Authorities in Shenzhen have launched an investigation, while the firm’s operations appear to have largely stalled.

Yicai’s on-site visit to Kinghood Group’s headquarters building in Shenzhen found that the company’s offices had largely been vacated and its lease with the building had terminated. When Yicai contacted the group’s brand general manager and a branch manager of Jingcheng Shijia, its wealth management subsidiary targeting high-net-worth clients, both said they had “resigned.”

A Shenzhen-based Kinghood employee told Yicai that since the crisis emerged, the company has delayed salary payments, with some staff still not fully paid their August wages. Payments to suppliers have also been disrupted, the employee said.

Yicai also contacted the Office for Combating Illegal Fund-Raising of Shenzhen’s Yantian district as an investor. A staff member there said the case is initially estimated to involve CNY70 billion to CNY80 billion, adding that Kinghood’s senior executives remain in China.

The official said the government has established a special task force to address the collapse of Kinghood’s wealth management products, though specific disposal plans are still under discussion.

An investor who purchased the defaulted products told Yicai that as early as June this year, some Kinghood-linked wealth management products had already failed to redeem on time. Instead of resolving the issue, the company offered investors three so-called “upgrade plans” promising higher returns to delay repayments.

From November, however, the scale of overdue products expanded rapidly. A senior lawyer who represents Kinghood investors told Yicai he has recently received a surge of inquiries, mostly related to missed redemptions.

According to the lawyer, the products involved include gold entrusted purchase-and-sale arrangements and limited partnership agreements signed with private equity funds. Most of the funds raised were invested in Kinghood-related gold recycling projects or corporate equity operations.

“Without exception, Kinghood promised relatively high annualized returns on these products,” the lawyer said, adding that the company used various methods to circumvent legal requirements when determining whether investors were qualified.

Cao Jinyi, director of Beijing Circuit Law Firm, told Yicai that although some Kinghood projects were nominally offered only to specific investors, they in effect raised funds from unspecified members of the public by promising principal and interest repayments at fixed rates.

“Absorbing public deposits is a licensed banking activity,” Cao said. “Kinghood and its partner institutions may have effectively engaged in similar activities without the required qualifications, which could constitute suspected illegal public fund-raising.”

Editors: Tang Shihua, Emmi Laine