Citic Pacific's history of dicey deals and dodgy disclosure

It's not just difficulties with a mammoth mining project in Australia that have left Citic Pacific's risk management capability under unwelcome scrutiny.

The Hong Kong-listed investment firm, 58 per cent-owned by the Chinese central government's Citic Group, left the investment community shocked during the 2008 financial crisis when it announced an estimated HK$15.5 billion loss from unauthorised high-risk trades on the Australian dollar, the euro and the yuan.

The foreign currency bets were largely intended as a hedge against the company's exposure to the rapidly appreciating Australian dollar, but it was criticised for entering into complex derivative contracts bearing unlimited downside risks without proper oversight by its board.

In March 2009, Hong Kong police began a criminal investigation, accusing Citic Pacific of defrauding three banks by failing to notify them of big losses before borrowing HK$1.75 billion from them. Former chairman Larry Yung Chi-kin and managing director Henry Fan Hung-ling resigned a month later.

The next month police raided the company's Hong Kong office and seized files. Citic tried to prevent the police from accessing six documents as part of their investigation, saying the legal advice contained in them was private.

A Court of First Instance judge later ruled that there was a case to answer on a charge of conspiracy to defraud, and that the documents should be passed to police because legal advice used to facilitate fraudulent acts was not protected.

But a Court of Appeal judge overturned the decision in March last year, saying there was no evidence that the documents were produced in order to facilitate dishonest conduct.