Fortescue Metals misled market, Federal court told

05 May 2009

The Federal Court in Perth was told yesterday by Neil Young, lawyer for the Australian Securities and Investments Commission (ASIC) that Fortescue Metals Group (FMG) made the certain announcements in 2004 as part of an aggressive public relations campaign.

According to the commission, the company misled the market about agreements with three Chinese companies which the company termed 'binding contracts' when actually they were not (See: Fortescue hit by revelations in Australian court). 

The agreements, signed in August and November 2004 to build and finance FMG's Pilbara iron project, were not binding the commission said. The corporate watchdog 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.

Young said the agreements for possibly entering 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 also to be settled.

But John Karkar, lawyer for FMG, said that ASIC had produced no evidence to show that the information was relied upon by anyone or it caused a loss to anyone.
Justice Gilmour should thus not find either Fortesque of its director Andrew Forrest guilty he said.

FMG and its chief executive Andrew Forrest could have to pay up penalties up to $6 million and $4.4 million, respectively, if the charges against are upheld.
Forrest could also be banned as a director of the company in case of an adverse verdict.