Minority shareholders urge securities watchdog to appeal Citic misconduct ruling
Lawmaker James To Kun-sun has helped about 200 Citic small shareholders who suffered losses to seek redress
Minority shareholders of Citic Ltd have urged Hong Kong’s financial market watchdog to appeal against a ruling by the Market Misconduct Tribunal that cleared former chairman Larry Yung Chi-kin and four other ex-directors of misconduct and of providing misleading information to the investing public over massive losses from wrong-way foreign-currency bets in 2008.
“The Citic case has implications for the wider public interest besides those of its small shareholders,” said lawmaker James To Kun-sun, who has helped about 200 Citic small shareholders who suffered losses to seek redress.
“If the Securities and Futures Commission does not appeal, the case may become a reference case under common law, affecting its future regulatory work over governance of listed firms.”
Citic is China’s largest conglomerate and its first state-backed firm to tap overseas capital markets to fund business expansion.
It was led by Yung, a son of the late Rong Yiren, who was dubbed the “Red Capitalist” and China’s vice-president from 1993 to 1998.
Citic, then known as Citic Pacific, announced on October 20, 2008, that it had made a potential HK$15.5 billion (US$2 billion) loss from “unauthorised” foreign-currency trades, six weeks after management claimed they first learned about losses from such trades on September 7.
They attributed the delay in disclosure to an investigation into what happened.
Shares in Citic halved on the first trading day after the revelation.
Simon Chui Wing-nin, a former assistant director of finance at Citic, was convicted three years ago on two counts of insider dealing in Citic shares. He was alleged to have sold them on September 9 to 12, 2008.
“If Chui had known about the losses and traded on inside information, how could the other five directors claim they did not know about them?” minority shareholder Leung Kwok-keung told reporters.
In the tribunal proceedings, the SFC had argued that a management meeting, alongside other evidence, demonstrated that Citic and its senior directors were aware it was bleeding money ahead of the publication of a shareholders’ circular dated September 12, 2008, which made no mention of any material changes in the company’s financial health.
Counsels for the defendants countered that the losses were unclear before the circular since volatility of the currencies at the time could have turned a loss into a profit.
The tribunal’s chairman Mr Justice Michael Hartmann handed down a verdict on April 10 this year saying “there has been a failure to prove” culpability, ruling they had not engaged in market misconduct in the circular’s publication.
SFC chairman Carlson Tong Ka-shing said the regulator’s legal team had been reviewing the judgment to see if there was sufficient ground for an appeal.
“We would decide whether to make an appeal base on legal grounds. We would not do it due to any lobby or pressure but we would make the decision based on legal grounds,” Tong said.
The commission has 28 days after the judgment to decide to appeal.
To said that if the SFC did not appeal, it would have negative implications for its other lawsuit initiated in September 2014 to seek compensation for HK$1.9 billion of trading losses for as many as 4,500 Citic investors. The case is still pending a hearing.
Additional reporting by Enoch Yiu