The estate of the late David Coe, whose death on a skiing holiday in Aspen in January at age 58 shocked the corporate world, is being pursued in a shareholder class action to recoup losses from the collapse of his Allco Finance Group.
The claim for false and misleading conduct and breaches of disclosure laws has also been brought against Allco's auditor KPMG.
Mr Coe founded the Allco Finance Group in 1979 with Sydney businessman John Kinghorn, who was subject to corruption findings by the Independent Commission Against Corruption last week.
During the sharemarket boom Allco expanded aggressively, taking on billions of dollars in debt, and Mr Coe even led a leveraged takeover bid for Qantas. That deal came unstuck at the eleventh hour but Allco's debts were still its undoing and Mr Coe's financially engineered maze of companies imploded in the global crisis, owing billions of dollars.
The class action, to be filed by law firm Maurice Blackburn in the Federal Court on Thursday, alleges gross and continuous failures of disclosure to the sharemarket. It claims that the failures occurred between August 21, 2007, and February 27, 2008, during which time Allco shares dived from $9.20 to $1.03.
It is open to any shareholders who suffered losses during this time and so the claims may run into hundreds of millions of dollars.
There are two key elements to the claim. The first is that Allco, Mr Coe and KPMG failed to identify around $1.9 billion in "current liabilities", that is, debts which had to be refinanced within a year. In the aftermath of the global credit market meltdown in July 2007, it had become far more difficult to secure credit at reasonable rates.
The second is Allco's failure to properly inform the market of the "triggers" on its debt covenants, specifically, the share price levels at which it would be forced to renegotiate with its bankers. The claim alleges Allco continually misrepresented its financial position in a number of announcements to the ASX.
Last week, Allco's receiver Ferrier Hodgson confirmed it was suing Gordon Fell, a fellow Allco director and close associate of Mr Coe, for damages and breaches of director's duties. Ferrier accuses Mr Fell of hiding information from Allco shareholders when he and Mr Coe sold their Rubicon funds business to Allco in December 2007.
Mr Fell and Mr Coe were on the Allco board when Allco spent $263 million buying Rubicon, for which they shared $64 million in cash and 19 million shares worth $132 million with another vendor, Matthew Cooper.
The reckless acquisition of Rubicon left Allco with far higher liabilities at the very peak, and the end, of the boom. But this latest action from Maurice Blackburn dwells on misleading and deceptive conduct which began four months earlier, in August 2007.
According to the claim, Allco was questioned about its exposure to the subprime meltdown and told the market it "remains largely unaffected by current issues in this sector". On August 16 it told the market there was "no significant impact". Then, on August 21 in an investors' presentation, it announced it had "current" debt of $193.4 million when its true debt position was $2.07 billion in "current liabilities". This discrepancy was also missed by the auditor, KPMG. It was not revealed to the market until February 2008.
Allco, the claim alleges, was subject to a "review clause" in its banking covenants which should have been revealed to the market when the market value of Allco fell beneath $2 billion. When it breached this level, the disclosure was not made, keeping shareholders and the market in the dark.
Allco's other directors may be joined in the action by KPMG or the insurance companies under their obligations of "proportionate liability" as directors.