The Full Bench handed down its judgement on Friday, finding Fortescue and Fortescue misled the sharemarket in 2004 and 2005 when it told investors that it had secured agreements with Chinese investors to build a port, mine and railway project in Western Australia's Pilbara region.
The Full Bench found Fortescue and Forrest knew the agreements were not binding, but failed to disclose this.
Fortescue now faces the prospects of fines for the breaches of the Corporations Act, but for Forrest the ramifications are much more serious – he faces the possibility of being banned as a director.
Fortescue has denied it misled investors and says it will consider its legal options in relation to the case. It has 28 days to decide whether it will launch an appeal to the High Court.
Investors seemed to have taken the news of Forrest's problems in their stride. Fortsecue shares actually rose 1c on Friday, and have fallen just 2% in morning trade to be at $6.73 at 11:30 AEDST.
The reaction of shareholders probably has much to do with the fact that Fortescue's operations are starting to hit stride.
Fortescue also announced on Friday that profit had jumped seven-fold from $43 million to $310 million in the first half, and declared a 3c dividend that handed Forrest a $29 million payday.
The strong results suggest Fortescue's iron ore operations are now well established, and should be able to survive with or without Forrest at the helm.
The ASIC case against Fortescue dates back five years. The corporate watchdog actually lost its initial case against the miner in December 2009, but immediately launched an appeal that was eventually upheld unanimously.
ASIC chairman Tony D'Aloisio was quick to trumpet the deal on Friday.
"ASIC appealed the Federal Court's Fortescue decision because the trial judge's findings raised critical issues about the proper interpretation of the parts of the Corporations Act that govern company announcements. 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," he said in a statement.
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