Tribunal begins hearing case of short-seller who alleged developer Evergrande was insolvent
A Hong Kong tribunal started a preliminary hearing on Wednesday involving the head of US short-seller Citron Research over allegations that Citron published a “false and misleading” report about China’s fourth-biggest developer, Evergrande Real Estate Group, in 2012.
The hearing, in the Securities and Futures Commission’s first such action against activist short-selling firms, coincides with fresh signs that heavily indebted Evergrande has become a target as global investors become increasingly worried about pressure on Chinese developers’ cash flow in the wake of peer Kaisa Group Holdings’ offshore debt defaults and the industry’s struggle to overcome a serious glut, particularly in third and four-tier cities where Evergrande has a strong presence.
At the city’s Market Misconduct Tribunal, representatives of Citron chief Andrew Left disputed allegations made by the SFC in December that he made a profit of about HK$1.7 million by publishing a report on June 21, 2012, stating, among other things, that Evergrande was insolvent and had consistently presented fraudulent information to the investing public.
"The report pertained to Evergrande and was negative in the sense that it stated, inter alia, that the company was insolvent and had consistently presented fraudulent information to the investing public," the SFC submission said.
"The information in the report was false or misleading … The company was not insolvent and nor had it consistently presented fraudulent information to the investing public."
Evergrande shares slumped 19.6 per cent to an intraday low of HK$3.60 following the release of the report, before closing down 11.4 per cent, compared with a 1.3 per cent drop in the benchmark Hang Seng Index.
The SFC submission said Left "was reckless or negligent" to release a report that was "false or misleading" to lure other investors to trade the shares for his own profit and hence might have committed market misconduct.