Steel fraud targets 3 state-controlled companies

By Dong Hui  |   2008-11-4  |     NEWSPAPER EDITION

A SHANGHAI businessman was arrested for stealing over 100 million yuan (US$14.6 million) from state-owned steel enterprises, the Shanghai No.2 Intermediate Prosecutors' Office said yesterday.

Zhao Yafeng, 41, had been running three steel businesses registered in his own name, and that of his wife and cousin, since 2001. When losses left the companies in financial peril in 2007, he attempted to raise money on the futures market, the prosecutors' office said

In September 2007, Zhao signed futures contracts with three state-owned steel enterprises: Sinosteel Shanghai, Minmetals Shanghai Pudong Trading and Sinosteel Zhejiang. Zhao sold steel to the companies at one price, promising to buy it back at a higher price at a fixed date.

Sinosteel Shanghai, a giant of the steel industry, and large-scale Minmetals had done similar deals with Zhao's three companies before, and a manager of Sinosteel Shanghai introduced Sinosteel Zhejiang to Zhao, the prosecutors' office said.

But Zhao didn't have any steel to sell. Instead he fabricated warehouse entries, making the companies believe the deal was legitimate, and received tens of millions of yuan.

In April, when Minmetals requested a stocktake, Zhao sent an employee to present fake warehouse entries, stock lists and storehouse seals. He also bribed a stockkeeper surnamed Xu to produce fake stocktaking reports which were given to a Minmetals' employee, according to the prosecutors' office.

None of the three companies discovered Zhao didn't own the steel he had sold them. When they asked Zhao to hand over the steel, Zhao fobbed them off with excuses of financial difficulty and asked for more funds. By March he had collected over 100 million yuan.

In June, Zhao was due to buy back the steel. China's Minmetals Corporation, the parent company of Minmetals Shanghai, allocated an auditing company in Beijing to take stock and it found Zhao didn't have what he'd sold the company.