ASIC has taken legal action against Fortescue Metals Group Ltd and its CEO Andrew Forrest alleging misleading and deceptive conduct and failure to comply with its continuous disclosure obligations.
ASIC has taken legal action against Fortescue Metals Group Ltd and its CEO Andrew Forrest alleging misleading and deceptive conduct and failure to comply with its continuous disclosure obligations.
The allegations, issued in proceedings in the Federal Court in Perth, relate to announcements of various contracts with Chinese entities on 23 August 2004 and 5 November 2004.
FMG has issued a statement denying the claims, which come on the same day as substantial shareholder HMC Investors LLC spent around $15 million pushing its holding in the mining wannabe to almost 9.7 per cent.
ASIC said in the first announcement from which its allegations stem, on 23 August 2004, Fortescue claimed it had a binding contract with China Railway Engineering Corporation to build and finance a railway from its tenements to the export hub at Port Hedland.
In the second announcement on 5 November 2004, Fortescue claimed to have further binding contracts with:
- China Harbour Engineering Corporation to design, build and finance a shiploading and stockyard facility at Port Hedland; and
- China Metallurgical Construction (Group) Corporation to design, build and finance a mine process plant.
ASIC is alleging that Fortescue, when making these announcements, failed to disclose important information regarding the nature of these documents.
In particular, Fortescue did not disclose that the parties had not reached a concluded agreement on fundamental aspects of the projects and they had merely agreed that they would in the future jointly develop and agree on such matters.
Below is ASIC's announcement and FMG's response:
ASIC COMMENCES PROCEEDINGS AGAINST FORTESCUE METALS GROUP AND ANDREW FORREST
The Chairman of the Australian Securities and Investments Commission (ASIC), Mr Jeffrey Lucy today announced that ASIC has issued proceedings in the Federal Court in Perth seeking civil penalty orders against listed company Fortescue Metals Group Ltd (Fortescue) and its Chief Executive Officer, Mr Andrew Forrest (Forrest).
Fortescue is a listed company that is developing a project to mine iron ore in the Chichester Ranges in the Pilbara region of Western Australia and exporting it from Port Hedland.
ASIC is alleging that Fortescue engaged in misleading and deceptive conduct and failed to comply with its continuous disclosure obligations when it announced various contracts with Chinese entities on 23 August 2004 and 5 November 2004.
In the first announcement on 23 August 2004, Fortescue claimed it had a binding contract with China Railway Engineering Corporation to build and finance a railway from its tenements to the export hub at Port Hedland.
In the second announcement on 5 November 2004, Fortescue claimed to have further binding contracts with:
- China Harbour Engineering Corporation to design, build and finance a shiploading and stockyard facility at Port Hedland; and
- China Metallurgical Construction (Group) Corporation to design, build and finance a mine process plant.
This announcement stated that Fortescue had established a broad platform for the delivery of the three major component parts of its AUD1.85 billion Pilbara Iron Ore and Infrastructure Project.
ASIC is alleging that Fortescue, when making these announcements, failed to disclose important information regarding the nature of these documents.
In particular, Fortescue did not disclose that the parties had not reached a concluded agreement on fundamental aspects of the projects and they had merely agreed that they would in the future jointly develop and agree on such matters. Following media speculation and queries from the Australian Stock Exchange (ASX), Fortescue disclosed the documents, comprising of 3, 4 and 5 pages respectively, on 29 March 2005 and 31 March 2005.
ASIC is seeking civil penalties of up to $3 million against Fortescue.
In relation to Mr Forrest, ASIC alleges that he was knowingly concerned in the contraventions by Fortescue and also, that he breached his duty as a director to exercise care and diligence by failing to ensure that Fortescue complied with its obligations.
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ASIC is seeking penalties of up to $600,000 against Mr Forrest and an order that he compensate Fortescue for any pecuniary penalty it is required to pay.
ASIC's investigation commenced in May 2005 following a referral from the ASX.
The matter is currently scheduled for a directions hearing on 28 March 2006.
Below is FMG's response
FORTESCUE TO VIGOROUSLY DEFEND ASIC PROCEEDINGS - IRON ORE PROJECT REMAINS ON TRACK
Fortescue Metals Group Ltd ("Fortescue') advises that it has been informed by the Australian Securities and Investment Commission ("ASIC") that it intends to commence legal proceedings against Fortescue and its Chief Executive Officer in relation to market disclosure of certain agreements signed by the company in 2004.
The agreements in question relate to those signed with China Railway Engineering Corporation ("CREC"), China Harbour Engineering Corporation ("CHEC") and China Metallurgical Construction Corporation ("MCC").
Both the company and the CEO Mr Andrew Forrest will vigorously contest the charges and will be examining detail of these charges in the coming weeks and formulate responses to ASIC.
The charges relate to disclosure of agreement detail that has been well covered under both ASX and media releases some 12 months ago following the voluntary public release by Fortescue of copies of the agreement with the abovementioned parties.
The company's Chairman Mr Gordon Toll has stated that, "Most importantly the company's operations and progress remains on track. The Pilbara Iron Ore and Infrastructure Project is proceeding on schedule, with earth works at the port site commencing last month."
"Fortescue has strong and appropriate corporate governance policy and procedures in place.
"In relation to this matter, Fortescue released all appropriate information and disclosures to the market in a timely manner. We remain strongly of the view that the company acted legally and in shareholder's best interests."
The ASIC statement of claim alleges a breach by the Company and by the CEO of the continuous disclosure provisions of the Corporation Act under Section 674 and also a breach under Section 1041 H relating to deceptive and misleading conduct. ASIC is seeking civil penalties of up to $3,000,000 for the company and $600,000 for the CEO and an order that he compensate Fortescue for any pecuniary penalty it may be required to pay.
