Under-fire Citic seeks legal advice on SFC's HK$1.9 billion lawsuit

State-backed conglomerate Citic is seeking legal advice on a HK$1.9 billion lawsuit brought by the Securities and Futures Commission (SFC) against it and five former directors for their failure to disclose massive forex losses in 2008.

Meanwhile, analysts called for action to address the serious corporate governance "problems" revealed in the case.

Citic was "in the process of considering the SFC's allegations and claim, and seeking legal advice", company chairman Chang Zhenming said in a statement issued yesterday morning. Its share price dropped by as much as 5.14 per cent yesterday before closing at HK$14.78, down 4.06 per cent from Thursday's close.

A writ filed by the SFC to the Court of First Instance on Thursday revealed a chaotic picture of the boardroom of the then Citic Pacific in 2008, with then chairman Larry Yung Chi-kin allegedly claiming he signed an important shareholder circular without reading it and then director Leslie Chang Li-hsien allegedly saying the forex investment he had made was "out of control".

"Something must be done to address the corporate governance problem as revealed in the case," said Clement Chan, president of the Hong Kong Institute of Certified Public Accountants.

"Investors rely on senior executives of the listed companies to have internal controls in place to prevent the firm from taking excessive risks. It would not be acceptable for someone as senior as a chairman to claim that he had not read a document before signing it."