CITIC Pacific — $2B forex loss, unauthorized trades, police raid, chairman resigned

CITIC Pacific was a Hong Kong-listed subsidiary of CITIC Group, a Chinese state-owned conglomerate. In 2008, the company's senior financial managers entered into unauthorized currency hedge contracts against the Australian dollar, with a total contract value of A$9 billion. The hedges were meant to cover a A$1.6 billion planned acquisition and capital expenditure, but the position was far larger than necessary.

When the Australian dollar declined sharply from 98.5% against the US dollar to less than 70%, the company suffered massive losses. On 20 October 2008, CITIC Pacific disclosed a loss of HK$15 billion (US$2 billion) from the unauthorized trades — more than the company's total market value. The board had been aware of the trades since 7 September but delayed disclosure by six weeks.

In April 2009, Hong Kong Police raided CITIC Pacific's office as part of an investigation into whether directors made false statements about the forex contracts and conspired to defraud. Chairman Larry Yung and managing director Henry Fan resigned on 8 April 2009. Yung's daughter Frances, who was involved in the trades, was demoted.

When trading resumed after the disclosure, the share price fell by approximately 75%. CITIC Group pledged its support to the subsidiary. The company was renamed CITIC Limited in 2014. The scandal became a landmark case for corporate governance and disclosure requirements in Hong Kong-listed Chinese companies.