Hong Kong private equity group steps into legal row with stake purchase
Plaintiffs worry this move could prevent settlement with ARC Capital Holdings investors
A move by Hong Kong private equity firm Pacific Alliance Group (PAG) to step into a HK$600 million legal row is being viewed with concern by plaintiffs and industry watchers.
PAG's purchase of a controlling stake in AIM-listed fund ARC Capital Holdings (ARCH) puts it at the heart of a case alleging negligence and breach of contract involving investments earmarked for a majority stake in Orient Home, part of the Orient Group conglomerate run by mainland billionaire and Minsheng Bank vice-chairman Zhang Hongwei.
PAG is majority owner of Arc Capital Partners (ACP), a money manager originally set up to handle US$550 million raised by ARCH for investment in Asian private equity.
In 2010, ACP gave 480 million yuan of ARCH's money to Zhang, "without ensuring or taking any or any adequate steps to ensure that any or any adequate security was obtained", a claim filed by ARCH last year in London's high court alleges.
The money disappeared and ARCH is now seeking damages from ACP, claiming the ex-manager was negligent and breached contract.
"ARCH's claims are without merit. ACP will vigorously defend itself against all such claims," an ACP spokesman told the South China Morning Post.
PAG's move to step in and take control of ARCH, replace its non-executive directors and commission a review of the case is viewed by some as a prelude to snuffing out the lawsuit and preventing a settlement with investors.