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 .
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.
"The fear is the new board will not be as aggressive in pushing forward with the claim," or investigating other contentious investments, one investor told the , declining to be identified citing the legal action.
Hong Kong forensic accountant Cosimo Borrelli who was appointed to the board in the initial shake-up was "removed" in late March, according to an exchange filing.
Investors interviewed said that more than half of ARCH's original capital was either written off or mired in disputes.
The majority stake cost PAG, which manages US$11 billion, an estimated US$34 million, according to trading data - roughly half the amount ARCH is seeking in the lawsuit.
Co-founded by Chris Gradel, and led by veteran financier Shan Weijian, PAG invested more than US$24 billion over the past decade. The firm ranks among the region's top 20 dealmakers, according to data analysts Preqin.
Arbitration proceedings against Orient began in May 2013 in Beijing. A final judgment is still pending.
Mystery surrounding the deal intensified last summer when ex-PAG partner Allan Liu, and deal counterparty and Cypress and Kingwin Capital executive Jiang Yuemin, were questioned by mainland police over allegations of embezzlement and fraud.
Jiang remains in detention, said a former colleague who spoke on condition of anonymity, while Jiang's business partner, Wang Ping, was detained in late February in Zhuhai.
This article appeared in the South China Morning Post print edition as: Pacific Alliance stake buy puts it into legal row
