On Monday 4, Australian iron ore miner Fortescue Metals Group Ltd. (Fortescue) faced a suit from Australia's corporate regulator Australian Securities and Investments Commission (ASIC) which alleges that the company misled the market about deals with three major state-owned Chinese companies.
In the Federal Court in Perth, ASIC's legal representative Neil Young said that Fortescue and its CEO Andrew Forrest had made certain misleading announcements in 2004 as part of an aggressive public relations campaign.
According to ASIC, the company misled the market about agreements with three Chinese enterprises which the company termed binding contracts when actually this was not the case.
The agreements, signed on August 23 and November 9, 2004 to build and finance Fortescue's Pilbara iron project, were not binding, ASIC said. It claimed the company's share price surged on the announcements and later plunged when the non-binding nature of these so-called ‘framework agreements' was revealed.
Mr. Young also said the agreements for possible entry into future agreements could not be construed as binding contracts by any reasonable investor. FMG was also aware the issue of Chinese equity in the company had to be settled.
On the other hand, Fortescue lawyer John Karkar said that ASIC had produced no evidence to show that the information was relied upon by anyone or that it had caused loss to anyone. As a result, he said, Judge Justice Gilmour should not find either Fortescue or its director Andrew Forrest guilty.
In his closing submission, Mr Karkar said that the disclosures FMG made about the so-called binding agreements in August and November 2004 were correct in view of the market knowledge that the deals were contingent on achievement of certain milestones.
Fortescue and Andrew Forrest may have to pay penalties of up to AU$6 million and AU$4.4 million, respectively, if the charges against them are upheld. Mr. Forrest could also be banned as a director of the company in the event of an adverse verdict.