NAB shareholder class action: Why not?

Law firm Maurice Blackburn is running a class action against the bank. Richard Livingston explains why you should consider signing up for it.

Key Points

  • Applies to shareholders that acquired NAB shares between 1 Jan and 24 Jul 08
  • Funding and indemnity from International Litigation Funding Partners minimises downside risks
  • Investors can ‘opt out’ but no action means sacrificing your rights

Background

Two private companies have commenced litigation against National Australia Bank, seeking compensation for damages suffered as a result of buying NAB shares on the basis of various representations made by the company.

The plaintiffs action is being taken on their own behalf and potential ‘group members’—those who acquired shares between 1 January 2008 and 24 July 2008 with similar claims for loss or damage (refer to Notice to Group Members for more detail).

The action relates to NAB’s announcement on 25 July 2008 that it had provisioned more than $1b against a portfolio of collateralised debt obligations (CDOs), and the subsequent price fall of $4.14 (13%).

Put simply, the allegation is that NAB mislead investors in earlier announcements and presentations about the extent to which it had analysed, and provided for, its exposure to CDOs.

Law firm Maurice Blackburn is advising the plaintiffs and the funding is being provided by International Litigation Funding Partners Pte Ltd (ILFP), a litigation funder based in Singapore. ILFP has also agreed to indemnify the plaintiffs against any cost order awarded against them. In return, ILFP is entitled to 40% of the winnings of shareholders with less than one million shares (larger shareholders pay 30-35%).

The opportunity

If you bought NAB shares between 1 January 2008 and 24 July 2008, you can join this class action, although you don’t have to. If you wish, you can ‘opt out’ and reserve the right to commence your own legal proceedings. If you do nothing, you’ll forfeit your right to mount a similar case.

As to the chances of the action being successful, we can't say. In 2008, banks were being hunted by short sellers and faced evaporating liquidity. Under those circumstances, any adverse news may have had dire consequences. Putting a gloss on things is understandable but not necessarily legal.

Let’s leave the merits of the case or otherwise to the courts and look at the deal for potential claimants: It seems to be all upside and limited downside. Given the costs of mounting a case, if you’re interested this is probably your best and possibly only shot.

The Amended Statement of Claim (and NAB’s Defence) is full of detailed analysis of CDOs and accounting standards. Pages 9 to 12 of the Amended Statement of Claim contain details of the key 9 May 2008 and 11 July 2008 announcements, both central to the case.

Potential pitfall

The Notice to Group Members states:

In no circumstances will group members be required to pay more in legal costs and commissions than they receive in compensation.

That’s the limited downside, a function of the indemnity provided by ILFP, although it does mean you’re taking credit risk on the litigation funder. Your indemnity against costs being awarded against you is only as good as their ability to pay.

There is no publically available information on the financial status of ILFP. We recommend speaking to Maurice Blackburn about the potential exposure and whether there is some form of security provided to alleviate this risk.

Time to act

If you are a potential Group Member you need to register your claim by 4pm on 12 Oct 12. Subject to our comments about ILFP exposure, investors have everything to gain and very little to lose from registering.

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