Hong Kong regulators today said, they are suing state-owned Chinese conglomerate Citic and its former chairman in a bid to compensate investors over a huge loss related to a bungled bet on Australia's currency.
The Securities and Futures Commission said it launched legal proceedings against Citic Ltd. And five former executive directors for allegedly providing false or misleading information about the company's financial position in 2008. The commission said it was seeking a court order for compensation for up to 4,500 investors.
The company, formerly known as Citic Pacific, warned in 2008 it would suffer losses of USD 2 billion after bets on the Australian dollar and other currencies to hedge costs for an Australian iron-ore operation went sour.
Investor anxiety about the company's situation, magnified by the turmoil of the global financial crisis, sent Citic's shares plunging and wiped out two-thirds of its market value in four days.
The SFC alleges that Citic and the five directors "were aware of huge financial exposure arising from the leveraged foreign exchange contracts" six days before the company released a statement saying it wasn't aware of any "adverse material change" in its financial or trading position.
Investors bought about USD 245 million worth of stock during the period in question, the SFC said.
Chairman Larry Yung, who is one of those named in the suit, was forced to resign following the fiasco.
Yung comes from Chinese business royalty. He's is the son of Rong Yiren, who set up China International Trust and Investment Corp., or Citic, in the late 1970s and rode China's wave of economic reform to become one of the country's richest people. He also held the title of state vice president.
The Hong Kong-listed company changed its name after buying out its parent company's assets in a multibillion dollar deal this summer.
