Leighton's woes have only just begun.
Melbourne solicitor Mark Elliott has wasted little time in lodging a class action against Leighton (LEI), lobbing a writ in the Victorian Supreme Court just a day after allegations of bribery and kickbacks to win contracts in Iraq, Indonesia, Malaysia and elsewhere were published by Fairfax Media.
Elliott has form in this area. He already is leading a class action against the directors of failed Victorian financier Banksia and the Cherry Fund on behalf of 16,000 investors.
Leighton has vowed to defend the action. But the latest revelations – which were uncovered by law firm Allens while investigating Leighton's disclosure practices that now are the subject of a separate class action – have the potential to seriously wound the company.
The Australian Federal Police has had the matter under investigation ever since Allens' discovery in early 2011. And there it may have remained had the allegations not been aired in the press.
Now, however, pressure is mounting on the corporate watchdog to take action after yet another failure to enforce corporate behavior and the Federal Government is being urged to tighten or at least review Australian corporate law regarding corrupt practices in foreign jurisdictions.
That will ensure a constant flow of embarrassing revelations that will provide ready ammunition for class action litigants.
The company's weak response to the first article last Thursday – that it was aware of all the allegations and that nothing new was contained in the story – only served to confirm a culture of non-disclosure to its shareholders.
From a legal perspective, Leighton has handed itself up on a platter and the response was an invitation to class action litigants. Maurice Blackburn, already running a class action over Leighton's disclosure failings, no doubt would have been stunned by the response.
Shareholders certainly were. Leighton's board and management may have dismissed the story, but the company's investors headed for the exits. Leighton's share price tanked in the immediate aftermath, shedding more than 15%, although it recovered some ground this morning, rising 3.4% to $17.30.
As I mentioned last week, the revelations will have a lasting and long term effect on Leighton in two ways. The first is the potential for fines and settlements from legal action. And the second is the potential loss of business from clients not wishing to be associated with the group.
Deutsche Bank agrees. In a quickly compiled note on Friday, its analysts estimated the double effect could result in a $500 million hit to earnings.
After more than two years of upheaval at a management and board level, sparked by infighting and a leadership battle at its major shareholder, Australia's biggest construction company will have is reputation and prospects dragged through the mud for an extended period.
Things could get ugly.