The SFC alleges that CITIC provided “false or misleading information” about the firm’s financial position after it took massive losses over its investment in leveraged foreign exchange contracts in 2008, the regulatory body said in a statement.
As evidence, officials point to a circular from CITIC issued in September 2008 that said the firm was unaware of any “adverse material change” in its financial position.
However, ten months later, CITIC issued a profit warning that said it “suffered a massive realised and mark-to-market loss” from leveraged foreign exchange contracts that the firm was using to manage the currency risk of its Australian iron ore mining project exposure.
The profit warning revealed the firm had become aware of the massive losses before the September 2008 circular was issued.
From the date of the circular to the date of the profit warning, investors bought about HK$1.9bn ($245m) in CITIC stock, the regulator said.
Officials are seeking compensation for up to 4,500 investors who purchased CITIC shares during the period the “false or misleading information” was disclosed.
If the court finds CITIC liable, any compensation “will establish an important precedent governing the calculation of what may be required to restore a shareholder who has traded in a market affected by false or misleading information,” according to a statement from the SFC.
The SFC also wants CITIC and the five directors to be sanctioned by the Market Misconduct Tribunal.
