In a public letter, Citic Pacific Chairman Yung said he was not aware of the leverage foreign exchange contracts until September 7. Some contracts were terminated at that time, he said, but the rest accrued the HK$ 14.7 billion loss.
Yung said the contracts were signed “without proper authorization” and the potential exposure was “not evaluated correctly.”
Some critics raised questions about possible fraud, but an internal audit committee said there was “no reason to believe fraud or other illegal activities were involved.” Instead, the committee blamed two executives who later resigned.
The finance director, Li Hsien, for neglect in connection with the company’s hedging policy as well as failure to obtain approval from the finance chairman before conducting foreign exchange transactions.
The financial controller, Chau Chi Yin, also was cited for a failure in oversight. “In particular, he failed to bring to the attention of the chairman of the company any unusual hedging transactions,” said the audit committee.
Nevertheless, a Hong Kong-based analyst who refused to be named said the firm’s involvement in these high-risk investments should not have been a surprise. The firm’s historic positioning, nature and recent transformation led Citic Pacific into the high-risk financial arena.
“Citic Pacific stepped into complex derivatives, (and) although it may be coincidental, it also happened naturally,” the analyst said.