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Currency Scandal at CITIC Topples One of China's Richest Men

Posted by: Frederik Balfour on April 8, 2009

One of China’s mightiest has fallen. Billionaire Larry Yung, one of China’s richest men, and original poster boy of “Red Capitalism” has quit as chairman of Citic Pacific in the wake of about $1.62 billion in losses from betting on foreign exchange movements. Yung, 67 was the quintessential China “princeling” who used his sterling government connections to amass a fortune in the past two decades. He is the son of Rong Yiren, a former vice president of China and the founder of the country’s first state-owned investment vehicle Citic [Citic Pacific’s parent company] CITIC, which was set up in 1979 at the dawn of the country’s embrace of capitalism under Communist Party chief Deng Xiaoping.

His ouster will give some satisfaction to Citic minority shareholders who were livid when the company waited several weeks before disclosing currency losses that became known to the board during the financial crisis of last September. Citic Pacific was one of the first “red chip” companies to list on the Hong Kong stock exchange. Its parent, Citic, still controls nearly two thirds of the company, and bailed it out to the tune of $1.5 billion last fall after the currency losses were revealed. Many people at the time believed Yung should have taken the fall immediately but it became clear that his days were numbered when the company disclosed on April 3 that its offices had been raided by the Hong Kong police in a fraud investigation.

Now I’m no fortune teller, but where there’s smoke, there’s probably fire. Yung’s right-hand man, managing director Henry Fan has also resigned, and there’s a good chance both could be charged with conspiracy to defraud. One thing seems likely however, when trading of shares that were halted last Friday resume tomorrow, there is going to be more blood on the streets.

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