Sealand Blames Rogue Traders for Disputed Bond Deals

(Beijing) — Sealand Securities has blamed rogue traders for disputed bond deals with more than 20 financial institutions that are now facing huge losses.

The firm has been caught in the spotlight in a rout that rocked China’s bond market last week, as rumors surfaced online that it was disavowing the ownership of bonds originally worth 10 billion yuan ($1.44 billion) on grounds that the stamp used for the purchases was fake. This left the bank that was temporarily holding the bonds for Sealand with a huge paper loss, according to the rumor, which was widely circulated among bond traders on Wednesday.

On Thursday, the day after the rumor began, Sealand said the deal in question was signed by two former employees using a fraudulent corporate stamp. One of the employees had left the company in August and could not be reached; the other had turned himself in to the police, the firm said. Sealand did not confirm nor deny the value of bonds involved. Whether the employees were still working for Sealand at the time the deals were made is unclear.

The claims have touched a nerve with bond traders already jittery following recent market turmoil that has seen prices tumble on cash shortages and the U.S. Fed’s predicting greater-than-expected rate hikes next year. Many blamed Sealand for undermining investor confidence and exacerbating market woes.

At least 21 other commercial banks and securities firms have signed contracts with Sealand but the seals used, according to the company, are fake. The exact nature of the contracts is unclear.

Sealand said on Sunday that police have opened an investigation. Sealand said it did not authorize the deals, and Chen Liejiang, Sealand’s chief investment officer, questioned the validity of transactions using a fake stamp. “Those transactions have to be treated differently than if a real corporate stamp had been used,” Chen said.

It is unclear how many bonds are involved in the dispute.

Several traders who had deals with Sealand said the firm should be held accountable for the deals because the suspects were employed by the firm when they signed the contracts.

Contact reporter Wang Yuqian (yuqianwang@caixin.com)