Fortescue Metals (FMG) will be in court today as the Australian Securities and Investment Commission (ASIC) launches proceedings alleging the miner “seriously misled” the market.
ASIC claims that Fortescue’s founder and executive director Andrew ‘Twiggy’ Forrest overstated the nature of deals between the company and Chinese corporations in 2004 and 2005.
According to ASIC, FMG made a number of announcements about agreements with three Chinese companies to build and finance mining, rail and shipping infrastructure in the Pilbara, calling the deals “binding.”
The announcement of the deals is said to have led to Fortescue shares rising by as much as 35%.
ASIC said that when the contents of the deals were fully disclosed, it was revealed that they were framework agreements rather than binding.
The regulator claims that Forrest and FMG failed to comply with continuous disclosure requirements, and failed to correct misleading statements.
“Mr. Forrest was well aware there was a significant and growing ‘gap’ between what the market had been told and what actually appeared in the agreements, but did nothing to correct the position and instead perpetuated the misleading statements,” ASIC said.
According to ASIC chairman Tony D’Aloisio, such failure to disclose is a serious breach of the share market’s integrity.
“Keeping markets properly informed underpins confidence in the integrity of our markets and in doing so, it assists in keeping the cost of capital low which is important as our companies recapitalize,” he said.
If found guilty, FMG could face penalties of up to $10.6 million and Forrest could be forced to step down as executive director.
FMG has said that it will defend against the allegations.
“Fortescue’s position has not changed since the matter first arose and the company is fully prepared to defend that matter in court,” the company said.