Hearings in Citic market misconduct case start today

Case involves charges relating to undisclosed massive foreign exchange hedging losses

PUBLISHED : Sunday, 15 November, 2015, 11:41pm
UPDATED : Sunday, 15 November, 2015, 11:41pm

Tribunal hearings begin today in the keenly anticipated case of mainland conglomerate Citic and five former directors, including princeling and ex-chairman Larry Yung Chi-kin, on market misconduct charges relating to massive undisclosed foreign exchange losses.

To be heard by the Market Misconduct Tribunal, the case is part of a wider action taken against Citic and its directors by the Securities and Futures Commission.

The tribunal will hear claims that billionaire Yung and four former directors were either "reckless" and/or "negligent" to sign off on an exchange filing that was "false or misleading as to a material fact or was false or misleading through the omission of a material fact", a tribunal document shows.

The four are former deputy managing directors Leslie Chang Li-hsien and Peter Lee Chung-hing, former managing director Henry Fan Hung-ling and former executive director Chau Chi-yin.

Son of former vice-president Rong Yiren, Yung built Citic into a conglomerate with a range of businesses from telecommunications, property, steel making and mining.

The case dates from 2008 when Citic revealed HK$14.7 billion in losses stemming from a foreign exchange hedging product that was meant to protect the company's Australian mining investment against adverse changes in the Australian dollar.

According to a tribunal document, Citic directors were aware of the "material" losses by September 9, 2008, but on September 12, 2008, the directors signed off on an exchange filing saying they were "not aware of any material adverse change in the financial or trading position of the group".

It was more than a month later, on October 20, 2008, that Citic first issued a profit warning.

If the tribunal finds the defendants liable for the misleading statement, it has the power to impose limited fines and ban people from holding directorships.

A guilty verdict would also strengthen the regulator's hand in a separate High Court action against the same defendants where it is seeking HK$1.9 billion in compensation to pay back 4,500 affected investors.

There were many who thought the case would never get this far given the political muscle both Citic and Yung are believed to exercise.

It was only last year that the SFC filed a civil claim seeking compensation for investors who bought shares in the six weeks between the dates the losses were discovered by Citic's directors and before they were publicly announced.

After spending six years fruitlessly helping investors file claims against Citic and its directors in the small claims tribunal, lawmaker James To Kun-sun said he wanted to know "the full facts" including "how the company decided to speculate a great amount of forex disproportionate to their needs and general need of hedging by the company".

Hong Kong regulation lawyer Timothy Loh said the defendants might argue the losses were "uncrystallised" and therefore "there was nothing to disclose at the time the alleged false announcements were made".

If the tribunal finds the defendants liable for the misleading statement, then the regulator will have grounds to demand the HK$1.9 billion in compensation from them to pay off 4,500 affected investors.