Here is an almost impossibly delightful securities fraud case.

ChinaCast Education Corp is, or was, "a leading post-secondary education and e-learning services provider in China" run by Chan Tze Ngon and Jiang Xiangyuan. It went public in the US in 2006, and was on Nasdaq from 2007 until 2012, when it was de-listed for being very, very tiny and very, very terrible. At its peak,its market capitalisation was over US$200 million; now it is US$4.9 million.

According to the US Securities and Exchange Commission, one reason it got so tiny is that its business model consisted mostly of Chan and Jiang stealing all its stuff. Which is not a great business model for ChinaCast, though I guess it's fine for Chan and Jiang.

After Chan's management group lost control of the board, Chan and other members of that group, including Jiang, transferred ownership of China Cast's three colleges away from ChinaCast by transferring the ChinaCast-owned holding companies that held the colleges first to Jiang and the dean of one of the colleges and then selling them to other individuals.

So, impressive, but the money-stealing is even better.

ChinaCast raised a total of US$43.8 million in its December 2009 public offering. Chan misappropriated US$41 million of the proceeds by transferring the funds from ChinaCast to China Cast Hong Kong, which he secretly controlled, and then moving the bulk of the money to yet another entity outside ChinaCast's corporate structure. Chan directed and engaged in these transactions without seeking or obtaining the approval of ChinaCast's board of directors, and the transactions were not publicly disclosed until 

ChinaCast's new management caused ChinaCast to file a current report on Form 8-K on December 21, 2012, disclosing, Chan's misappropriation of the offering proceeds.

Here is more on ChinaCast's badness. Here let's just notice a little oddity of this case, which is that it is really only secondarily securities fraud. It's mostly just theft. But the problem facing US regulators is that this is (well, was) a US listed firm, with US investors whose stuff was stolen, but it is not illegal in America to steal stuff from Chinese firms in China.

You can see how this would chafe US securities regulators, but fortunately they found an answer, which is that basically any bad thing you can do at a firm is securities fraud. Because generally speaking, when you do a bad thing, you also don't disclose it, and Chan and Jiang didn't. Stealing US$41 million from your company? Not securities fraud. Signing a 10-K saying that the US$41 million is still there?  Securities fraud! So we got them.

It's a good lesson in how securities regulators can use disclosure rules to do substantive regulation: you can't get them for doing the bad thing, but you can get them for covering it up, which is just as good. Or just as useless, as the case may be: Chan and Jiang live in China and seem unlikely to make the trip to the US to let the SEC punish them.

Large banks and trading firms are frantically trying to determine whether they have fallen victim to a suspected commodities fraud emanating from the giant Qingdao Port in northeast China.

Citigroup and several other large Western banks are concerned that their loans may lack the appropriate collateral, big stockpiles of copper and aluminum at the port. The banks have inspectors on the ground who are trying to assess whether enough of the metals are there.

The worry stems from suspicions that a Chinese company pledged the same collateral for multiple loans. Chinese authorities are investigating the matter.

The case could have broad repercussions for the commodities market and the Chinese economy. Banks have funneled billions of dollars into the Chinese economy through these murky transactions, and commodities prices have been falling over concerns that such lending will dry up.

Western banks, including Citigroup, are bracing for any potential fallout.

Just months ago, Citigroup fell victim to a multimillion-dollar fraud in Mexico. If the Qingdao developments harm the bank, regulators and shareholders are likely to press it to explain why its controls had failed again.

Chinese companies are at risk, too.

Citic Resources, part of the state-controlled conglomerate Citic Group, plunged nearly 10 percent on Tuesday after it disclosed that it might be affected by an investigation into stockpiles of metals held at the port. Citic Resources said on Monday that it had asked the local Chinese courts to secure its metals stockpiles. The shares recovered on Wednesday.

The potential fraud is linked to an opaque corner of China’s financial system that has grown substantially in recent years, bringing huge amounts of capital into the country. Many Chinese companies and investors, struggling to secure traditional loans from the state-dominated banking sector, have instead turned to alternative, unregulated financing methods involving imports of materials like copper, aluminum and iron ore.

These commodities financing deals are part of a growing number of nontraditional lending activities that have pushed credit in China to levels that are raising fears among investors and analysts. Jonathan Cornish, the head of North Asia bank ratings at Fitch Ratings, estimates that total outstanding credit in China rose to more than 220 percent of gross domestic product last year, up from 130 percent in 2008.

A typical commodities financing deal works like this: Copper is imported using letters of credit, warehoused in duty-free zones and pledged as collateral for cheap bank loans. The loan proceeds are used by the importer to speculate in higher-yielding, short-term investments. The importer then either sells the commodity or the investment product after a few months when the original letter of credit falls due.

The problem in Qingdao appears to revolve around one such importer. Last Friday, Qingdao Port International, the biggest port operator in the Chinese city, announced that the authorities had begun investigating a suspected fraud related to the aluminum and copper stored in its warehouses. A day earlier, a report in The 21st Century Business Herald, a respected Chinese-language newspaper, identified the company under investigation as Qingdao Decheng Mining.

The report said Qingdao Decheng was suspected by the authorities of having pledged the same stocks of the metals — about 100,000 tons of aluminum and 2,000 to 3,000 tons of copper — as collateral for multiple loans, amassing bank debt exceeding 1 billion renminbi, or $160 million. Phone calls and emails to Qingdao Decheng’s parent company, Dezheng Resources, went unanswered on Wednesday.