The Securities and Futures Commission said it is also seeking compensation for up to 4,500 investors who purchased CITIC shares following the release of the misleading information. It is also seeking sanctions from the Market Misconduct Tribunal against the five former directors and CITIC.
The regulator alleges that CITIC issued a circular on 12 September 2008 which contained a “false or misleading statement about its financial position”.
Within the circular, CITIC said “the directors are not aware of any adverse material change in the financial or trading position of the Group since 31 December 2007…”.
However, the SFC said, in a profit warning on 20 October 2008, CITIC disclosed that it had suffered a massive and realised mark to market loss up to that date arising from a number of leveraged foreign exchange contracts which CITIC had entered into to manage the currency risk of its Australian iron ore mining project exposure.
Within the profit warning, CITIC revealed it had become aware of the exposure arising from those contracts on 7 September 2008 – before the circular was distributed assuring investors it was unware of any financial difficulties within the company.
The prices of CITIC shares, which were suspended from trading on 20 October 2008 before the profit warning, fell 55% from $14.52 to close at $6.52 on 21 October 2008 when trading resumed.
The SFC alleges the circular issued on 12 September 2008 was “false or misleading” and that CITIC and the five directors were aware of huge financial exposure arising from the leveraged foreign exchange contracts before the circular was issued.
The regulator added that it believes CITIC and the five directors are liable for issuing the circular containing the false or misleading statement and is seeking an order in the Hong Kong Court of First Instance to “restore investors who were buyers of CITIC shares after market close on 12 September 2008 and before the date of the profit warning, 20 October 2008, to their pre-transaction positions or be compensated for their losses”.
