SFC launches legal action against Citic to demand compensation for investors
Regulator seeks court order against state-backed conglomerate for HK$1.9 billion in compensation for 4,500 shareholders who suffered big losses
The Securities and Futures Commission (SFC) yesterday requested a court order against state-backed conglomerate Citic and five former directors, including chairman Larry Yung Chi-kin, seeking a total of HK$1.9 billion in compensation for 4,500 investors whom the regulator says suffered losses due to the firm's failure to report massive forex trading losses in 2008.
The action comes four years after the SFC completed its investigation in 2010 and on the eve of the expiry of the statute of limitations for any civil action six years after the event.
The South China Morning Post has obtained a copy of the writ filed yesterday in the Court of First Instance against Citic and Yung, managing director Henry Fan Hung-ling, who was also a former Executive Council member, two deputy managing directors Leslie Chang Li-hsien and Peter Lee Chung-hing, and executive director Chau Chi-yin.
The SFC alleges the firm and the five former executives breached sections 277 or 298 of the Securities and Futures Ordinance (SFO) which ban any company or person from distributing "materially false or misleading information that is likely to induce another person to subscribe for or buy securities".
The commission sought a court order under section 213 of the SFO to require the firm and the directors to pay HK$1.9 billion to the 4,500 investors who purchased Citic shares at an average price of HK$18.97. The regulator also filed the case with the market misconduct tribunal, which can order penalties such as fines or banning individuals from being directors or trading in the local market.
The SFC said Citic, a mining and property conglomerate, issued a circular on September 12, 2008 that contained a false or misleading statement about its financial position. The circular concerned a transaction of its subsidiary Dah Chong Hong Holdings but contained a statement saying "the directors are not aware of any adverse material change in the financial or trading position of the Group since 31 December 2007."
The company issued another announcement on October 20, 2008, saying it had suffered actual losses of HK$807.7 million and HK$14.7 billion in mark-to-market losses from hedging the currency risks of its Australian iron ore mining project.