ASIC wins Fortescue appeal
Published 11:42 AM, 18 Feb 2011 Last update 9:21 PM, 18 Feb 2011
Reuters, with AAP
The corporate regulator has successfully overturned an earlier court dismissal of its long-running case against Fortescue Metals Group Ltd and its billionaire founder Andrew Forrest.
The dismissal of the Australian Securities and Investments Commission’s 2009 case against Mr Forrest and Fortescue, which at the time alleged he and the company made misleading claims about infrastructure deals that never came to fruition, was overturned by the Full Bench of the Federal Court in Perth.
Chief Justice Patrick Keane, Justice Arthur Emmett and Justice Ray Finkelstein determined on Friday that Fortescue had indeed engaged in such conduct by making inaccurate public statements in 2004 about “binding” deals with Chinese firms.
The miner had also failed to comply with its continuous disclosure obligations while Mr Forrest was found to have breached the care and diligence obligations incumbent on directors under the Corporations Act.
Mr Forrest now faces a ban from acting as a company director.
Fortescue and Mr Forrest have been ordered to pay the applicant’s costs, which are expected to run into several million dollars.
The company and the billionaire face maximum civil penalties of $6 million and $4.4 million respectively.
The matter has been remitted to a judge of the Federal Court to determine the penalties to be imposed on Fortescue and Mr Forrest.
The only remaining option for Fortescue is to seek leave to appeal the decision in the High Court of Australia.
In the judgment handed down on Friday, Justice Finkelstein noted that Fortescue shares had soared during the period when the misleading statements were made.
“During the period, 23 August 2004 to end March 2005, those trading in FMG (Fortescue) securities had been seriously misinformed about the affairs of the company,” he said.
“Assuming for a moment that no shareholder lost money, if the market was materially misled, it can hardly be right that a prosecution not commence because, by reason of serendipity, shareholders made a gain.
“If that were the approach, the continuous disclosure obligations could be sidestepped by any successful corporation whose share price continued to climb after investors discovered that the corporation misled the market.”
Justice Finkelstein said it was likely Mr Forrest would have made a significant profit from trading in his own Fortescue shares during the period in question.
ASIC chairman Tony D’Aloisio said in a statement that the outcome on Friday of the court case reinforced the operation of the continuous disclosure provisions of the Corporations Act, which formed the bedrock of confidence in the integrity of Australia’s share market.
“Today’s result provides important reinforcement to the operation of the continuous disclosure provisions of the act which are the bedrock of confidence in the integrity of our markets,” Mr D’Aloisio said.
Fortescue shares were placed in a trading halt on Friday pending the handing down of the judgment, and last traded at $6.88.
Fortescue said the company and Mr Forrest still have an avenue of final appeal to the High …
