“Needless to say, this is a very unhappy event,” Mr. Yung told a news conference that day.
Mr. Yung blamed finance director Leslie Chang and financial controller Chi Yin-chau for failing to seek his approval for the trades and informing him of the potential risk. Both men had resigned, he added. Hong Kong newspapers later reported Mr. Yung’s daughter, Frances, was demoted with a pay cut from her position in the finance department.
CITIC Pacific also announced its major shareholder, Beijing-based CITIC Group, had bailed it out with a $1.5-billion loan and would double its stake to 58 per cent in return for absorbing most of its liabilities.
Two days after the company came clean, the Securities and Futures Commission announced it had launched a probe into the delay in informing the market.
After examining documents handed to the market regulator, Hong Kong police mounted a separate probe. On April 3, 2009, detectives raided the CITIC Pacific office. Five days later, Mr. Yung and Mr. Fan resigned.
In the years since, CITIC Pacific has sparred with investigators. After first saying it would co-operate with the probe, the company began a legal effort to reclaim material handed to the SFC and seized in the police raid.
In two rulings last year, Hong Kong’s High Court rejected the company’s bid to claim legal privilege over the documents. The court found a prima facie case of conspiracy to defraud and of theft, and ruled the documents, including legal advice, had been produced to facilitate those alleged offences.
From stock exchange filings and court evidence, it is clear that between learning of the scale of its hedging losses on Sept. 7 and informing the market in late October, managers made determined efforts behind the scenes to shore up company finances. Shareholders, however, were not warned.
On Sept. 16, 2008, CITIC Pacific informed the exchange about two unrelated mainland investments, but did not disclose the hedging losses senior management had learned about more than a week earlier. The board met on Sept. 23 to discuss the crisis and directed its audit committee to begin investigating the hedging contracts, according to the two rulings.
In the following three weeks, the company borrowed HK$250-million from the bank of Tokyo-Mitsubishi, HK$1-billion from the Bank of China and HK$500-million from the Industrial and Commercial Bank of China.
Resolutions authorizing the borrowing were signed by the board’s finance committee, including Larry Yung, Henry Fan, Peter Lee and Leslie Chang, according to evidence police gave the court.
Prosecutors said while securing the loans, CITIC Pacific’s board sought legal advice on how long it could delay announcing the losses.
“They wanted to raise money without telling what their true financial position was,” prosecutor Charlotte Draycott told the court. “This is a conspiracy to defraud.”
In March, CITIC Pacific won a more favourable assessment from the Court of Appeal. It upheld the company’s claim that some of the documents were privileged and thus unavailable to the prosecution. The court also disagreed with earlier findings of suspected criminal conduct.
Although police would have preferred to use the documents, the ruling does not undermine the case, people familiar with the investigation told Reuters.
As prosecutors ponder the evidence in Hong Kong, CITIC Pacific is intensifying efforts to end its suffering in the Pilbara.
On a recent day, the 4,000-strong work force raced to bring the mine into production. Plumes of dust whipped away in a hot dry wind as giant bulldozers sent slate-grey ore cascading down a stockpile behind a new power station and processing plant.
A 30-kilometre pipeline that will carry the ore snakes away from the processing complex through low scrub towards the coast at Cape Preston, where the company has built a port.
But even once shipments begin, it may take years for CITIC Pacific to dig itself out of trouble.