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Five Citic directors have been cleared by a Hong Kong tribunal of misleading investors over exactly when the Chinese state-backed conglomerate realised it had lost billions on a currency bet gone wrong.
The city’s regulator had hoped that a finding of misconduct by the tribunal would have set a precedent for payouts on any future claims of misconduct around disclosures.
The announcement of a $2bn loss in October 2008 halved the value of shares in the company then called Citic Pacific and dubbed the “red hong” in the 1990s when its listing in Hong Kong alongside locally grown hongs, or trading houses, represented the vanguard of Chinese capitalism.
The Securities and Futures Commission launched the case in September 2014, just ahead of the expiry of Hong Kong’s six-year statute of limitations. The SFC claimed misconduct because boilerplate-type language in an unrelated circular dated September 12, 2008 said the directors knew of no adverse change in the company’s financial position when the October announcement of the losses said they first learned of the problem on September 7.
Hong Kong’s Market Misconduct Tribunal found that the terms of misconduct under the city’s rules had not been met in the case as it was presented.
“Accordingly, it must follow that none of the specified persons has been identified as having engaged in market misconduct,” the tribunal said in a 160-page report.
It did note however that its mandate did not include asking why the company had waited six weeks to report the loss to its shareholders.
The losses stemmed from Citic’s development of its Australian Sino Iron joint venture with Clive Palmer, a project now more than five times over budget and years behind schedule. The company, still embroiled in lawsuits with Mr Palmer, announced a further writedown of $1bn on the project in February this year.
As part of its efforts to contain its costs and protect against currency fluctuations during the global market turmoil of 2007-8, Citic increasingly used so-called to Target Redemption Forward Contracts – later dubbed “kill you later accumulators” by bankers. At one point it feared its losses from the deals could reach $9bn.