It's being billed as the largest shareholder class action in Australian history. It remains to be seen whether this boast comes to pass but the class action litigation against the Commonwealth Bank will certainly involve a lot of shareholders.
There are two reasons for this. The first is that the case is being structured as "open ended" which means all eligible shareholders will automatically join unless they opt out of being the group. And it's hard to see why too many wouldn't be happy with the potential of a payday for nothing.
The second reason is that the lawyers Maurice Blackburn and their litigation funders, IMF Bentham have extended the timeframe for claim period back to July 1, 2015, which captures all shareholders that took part in the bank's $5 billion entitlement rights issue in August 2015.
And that means almost every shareholder who took up their entitlement and still had stock until August 4 this year could get an in on this action. Given all index funds hold Commonwealth Bank shares and retail shareholders are notoriously sticky shareholders the list of potential claimants could be very long.
To make matters easier for Maurice Blackburn the class action rides on the coat tails of Austrac's August 3-launched civil proceedings against the Commonwealth Bank alleging serious and systemic non-compliance with money laundering and counter terrorism laws – a staggering 53,700 breaches in all.
This information which was ultimately released when Austrac filed its legal action and was followed by a $5 billion collapse in the bank's share valuation.
Maurice Blackburn is alleging the shareholders were misled and deceived by the bank which the law firm said had "publicly confessed that its board was aware of the breaches in the second half of 2015 but chose to say nothing to the ASX until 4 August 2017".
Thus it is being alleged that the bank breached its continuous disclosure obligations over a period of two years – having not mentioned the money laundering and anti-terror investigations being undertaken by Austrac in any dispatches including its annual reports and documents supporting its entitlement issue.
Indeed the action brought by shareholders names several senior executives, including chief executive Ian Narev, two chief risk officers who were in that role spanning the period from mid 2015 until now, David Cohen and Alden Toevs, well as non-executive directors and the current chairman Catherine Livingstone and her predecessor David Turner.
The non-executive director group reads like a who's who of the big end of town – among them Harrison Young, Andrew Mohl, Sir David Higgins, Brian Long, Launa Inman and Jane Hemstritch. The lawyer leading the action Andrew Watson said they are named because they knew or ought to have known about about material information relating to Austrac compliance issues but he noted they were not formal respondents to the class action.
CBA non-executive director Andrew Mohl. Photo: Christopher Pearce
That's a big pool of insurance for the directors and their accompanying officers against which the shareholders in the class action can claim.
As history has shown, these cases never make it to court and success will be measured by the size of the settlement.
"As history has shown these cases never make it to court and success will be measured by the size of the settlement".
Maurice Blackburn isn't yet nominating the parameters of the settlement negotiations because they don't yet know the size of the class or the quantum of losses.
If won't be anything like the $5 billion plunge in the Commonwealth Bank's market capitalisation on the days following the revelation of Austrac's case. But it could be larger than the current record settlement set by Centro of $200 million.
One of the most difficult elements to determining these settlements is establishing how much the share price in question had been inflated because of the lack of disclosure and how much of the fall in share price was a direct result of the eventual disclosure.
If history is any guide, we won't see an outcome for a few years. The Commonwealth Bank may want to see how the Austrac case pans out but there is no sense of how long that will take.
Of course there is a slim possibility that the bank would like to see this settled sooner rather than later and put this chapter behind it. This is unlikely.
After all CBA said on Monday it intends to vigorously defend this claim.This story was found at: http://www.smh.com.auAuthor: Elizabeth Knight