One of China’s largest conglomerates has come under fire for misleading investors about the company’s financial status during the 2008 recession. Hong Kong courts received a complaint from the country’s financial watchdog against Citic and five of its former directors. The case is expected to create shock waves in the world’s second largest economy, as China’s godfather of internationalization, Rong Yiren’s son is involved in the case.
Hong Kong’s main financial markets regulatory authority, the Securities and Futures Commission (SFC) has put forward legal proceedings against Citic Limited and five of its directors. The authority submitted its complaint in both the Court of First Instance and the Market Misconduct Tribunal (MMT).
According to the Order issued on its website: “The SFC alleges Citic and the five directors engaged in market misconduct involving disclosure of false or misleading information on Citic’s financial position arising from the massive losses incurred by Citic over its investment in leveraged foreign exchange contracts in 2008.”
The complaint states that Citic knowingly provided misleading information to 4,500 investors causing a monetary loss.
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The case, although dating back six years, comes to light on the last day any proceedings could be addressed by the courts. Furthermore, the case puts Citic, a state-owned financial and banking giant in the limelight as China looks to evolve its financial markets structure and open up to the world. Mr. Yiren, now deceased, is recognized as China’s kingpin who transformed the economy during the 80’s. Mr. Yiren also served as Vice President of the People’s Republic of China during the 90’s.
Of the five former directors named by the SFC; Larry Yung Chi Kin, managing director, Henry Fan Hung Ling, deputy managing directors, Leslie Chang Li Hsien and Peter Lee Chung Hing and executive director, Chau Chi Yin Larry Yung, Mr. Yinger’s son.
The case aims to find solace for the four and a half thousand investors who suffered due to Citic’s stock crashing as a result of a miscalculated FX trade. During the period in question, prices of Citic shares, which were suspended from trading on October 20, 2008, before the firm issued a Profit Warning, fell 55% from $14.52 to close at $6.52 on October 21, 2008, when trading resumed.
Beijing has been doing its utmost to liberalize the world’s most populous nation’s economy in a bid to strengthen its position in the world economy. The latest case is a major setback for the country’s emerging pro-western ideology.