Court rules against underwriter in China’s first interbank bond fraud case

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SHANGHAI, January 3 (Reuters).A Chinese court found that the underwriter and two other intermediaries failed to perform due diligence and that Bluestone Asset Management Co. It has ruled that it will be responsible for up to 20% of the damages of more than 72 million dollars.

Bluestone, which suffered a 500 million yuan ($72.38 million) loss by investing in a bond issued by Dalian Machine Tool Group, is underwriter Industrial Bank Co. 601166. SS and allowed other intermediaries to simulate fraud and credit enhancement measures after the issuer defaulted.

A Beijing financial court ruled on Dec. 30 to open China’s first fraud case in the interbank bond market, according to a court filing seen by Reuters on Tuesday.

In a statement to Reuters, Bluestone welcomed the ruling in its favor, saying it was good for the market, but said the punishment for the fraud was insufficient and unfair.

The decision “protects investors and the fundamental integrity of the bond market,” Bluestone said, adding that the liability ruling was “unfair.”

“This misrepresentation ignores the fact that Dalian Machine Tool was unable to pay its debts and caused the plaintiff to suffer losses,” Bluestone said.

Industrial Bank declined to comment.

Bluestone has not said whether it will pursue further litigation.

The decision comes amid a slowdown in the economy and rising Chinese bond defaults amid the housing debt crisis.

Compared to the institutionally dominated bond market, China has taken a much tougher line against fraud in its stock market, which has many retail investors.

“Being the first case related to the publication of false information in China’s interbank bond market, the ruling will further raise the bar for various institutions involved in the bond market when it takes effect,” the Beijing Financial Court said in a statement. .

“It also encourages institutional investors to invest cautiously and make rational decisions.”

The court urged underwriters and other intermediaries to ensure that investors have access to accurate and complete information about bond issuers.

($1 = 6.9080 Chinese Yuan Renminbi)

(Reporting by Shanghai Newsroom; Editing by Robert Birsel)

((samuel.shen@thomsonreuters.com; +86 21 20830018; Reuters message: samuel.shen.thomsonreuters.com@reuters.net))

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