New | Former Citic directors signed off on ‘demonstrably untrue’ filing, SFC counsel says
Day 1 of misconduct tribunal hears emails allegedly showing growing alarm among former directors as forex hedging losses mounted
Five former directors at Chinese conglomerate Citic Ltd signed off on a “demonstrably untrue” exchange filing that failed to disclose a “material” loss stemming from ill judged foreign exchange hedging contracts, Hong Kong’s market misconduct tribunal heard on the opening day of a month-long hearing that will raise questions about director accountability at listed companies.
Representing Hong Kong’s securities regulator, the Securities and Futures Commission, senior counsel Adrian Bell told the packed tribunal that Citic directors knew the “actual position sitting on potential multibillion dollar” losses when they signed off on an exchange filing dated September 12, 2008 that stated they were not aware of any “material adverse change in the financial or trading position” of the company.
It was more than a month later, on October 20, 2008, that Citic first issued a profit warning, sending the share price plummeting and ultimately racking up HK$14.7 billion in losses.
In front of Justice Michael Hartmann, the hearing is part of a wider action taken against Citic and its ex-directors by regulators trying to prove the defendants were “reckless” and/or “negligent” to sign off on an exchange filing that was “false or misleading as to a material fact or was false or misleading through the omission of a material fact.”
The defendants are former Citic chairman Larry Yung Chi-kin, former deputy managing directors Leslie Chang Li-hsien and Peter Lee Chung-hing, former managing director Henry Fan Hung-ling, and former executive director Chau Chi-yin. They are expected to give testimony next month.
The tribunal was told how in late 2007, Citic bought a series of 17 leveraged hedging contracts that were meant to protect the company’s Australian mining investment against adverse changes in the Australian dollar. However, the contracts were structured so that “while the upside was capped...the downside to Citic was unlimited,” Bell said, comparing them to the controversial accumulator products sold by private banks before the financial crisis when investors had to pay up if markets moved against them.
