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CITIC faces HK legal proceedings
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HONG Kong’s securities regulator said yesterday that it had commenced legal proceedings against CITIC Ltd and five former directors for alleged market misconduct relating to foreign exchange contracts in 2008.
The Securities and Futures Commission said it had begun proceedings in Hong Kong’s Court of First Instance and the Market Misconduct Tribunal, in a bid to compensate up to 4,500 investors who had lost money as a result of the alleged misconduct.
The SFC alleges that CITIC issued a circular on September 12, 2008, that contained a false or misleading statement about CITIC’s financial position.
CITIC said in the circular that the company’s directors “were not aware of any adverse material change” in the group’s financial position but five weeks later disclosed that it had suffered a massive loss on a number of leveraged foreign exchange contracts, causing its share price to plummet 55 percent.
The SFC alleges that the company had knowledge of the financial exposure prior to publishing the circular.
In 2008, CITIC Pacific, a unit of one of China’s largest state-owned investment companies, reported mark-to-market losses of around US$2 billion as a result of the forex position that the company had taken out to hedge currency exposure resulting from its Australian iron ore mining project.
The SFC is taking legal action against Chairman Larry Yung Chi Kin, Managing Director Henry Fan Hung Ling, deputy managing directors Leslie Chang Li Hsien and Peter Lee Chung Hing, and Executive Director Chau Chi Yin, as well as CITIC Ltd.
Yung and his long-time deputy, Fan, were forced to resign in 2008 when Hong Kong police and regulators launched investigations into the hedging transactions.
Yung founded the conglomerate CITIC Pacific, once a favorite among investors because of its state backing and government-invested pedigree, and became one of China’s richest men.
CITIC Pacific became CITIC Ltd this year after a revamp of the CITIC Group subsidiaries.
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