Fortescue faces suit over Chinese deals

Fortescue Metals Group will next week face a suit from Australia's corporate regulator, which alleges the nation's third-largest iron exporter made misleading statements about deals with Chinese companies.

The case will focus on announcements made by Fortescue between August 23 and November 9, 2004, about framework agreements with three major state-owned Chinese companies, the Australian Securities and Investments Commission said yesterday.

The matter is with the company's lawyers, Fortescue spokesman Cameron Morse said yesterday in Melbourne.

Fortescue will defend the allegations vigorously, said executive director Graeme Rowley, also in Melbourne.

Shares in the company shed 6.1 per cent to A$2.45 at mid-afternoon Sydney time on the Australian stock exchange after the announcement, reversing an earlier gain of as much as 3.1 per cent.

The regulator alleged "Fortescue engaged in misleading and deceptive conduct by overstating the substance and effect of agreements with the three Chinese companies, in announcements and media releases made to the market and investors".

The commission also alleged the company failed to comply with the Corporations Act and that chief executive officer Andrew Forrest was involved in the alleged contravention and that he breached his duty as a company director.

Fortescue and Forrest may be ordered to pay a maximum of A$6 million ($7.3 million) and A$4.4 million respectively, the commission said.

It is seeking civil penalties against both. The hearing has been set down for five weeks in Perth.

- BLOOMBERG