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Posts Tagged ‘class act’

By Ruth Sulivan – April 24th 2011

Investors lost out on nearly £11bn ($18bn) from global cross-border investments as a result of unclaimed withholding tax last year.

This accounts for more than a quarter of the near-£40bn of global reclaimable withholding tax on dividends for 2010, according to research carried out by Goal Group, a specialist in tax reclamation.

“Fund managers and trustees should take responsibility for this. Fund managers should do this as part of their corporate governance,” said Stephen Everard, managing director.

US investors were the biggest losers last year with nearly £2bn of the withholding tax levied on income from their foreign equity and bond holdings that remained unclaimed, followed by the UK with more than £1bn, Japan £820m, Luxembourg £770m and France, with more than £700m.

The overall sum lost to investors has risen 50 per cent since 2006, the last time the survey was carried out. Mr Everard said it was essential that custodian banks took action to curb escalating losses.

“Most big custodian banks have the capability to follow unclaimed withholding tax but smaller custodians and prime brokers do not do it as it is labour intensive,” he added.

To read this article on the FT website please click here

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Pension funds online28th Febraury 2011

The US saw a long list of class actions filed by angry foreign investors appearing in its courts in 2008, as the financial crisis took hold. Now, three years later, Pension Funds Insider asks how European pension schemes can still pursue such claims, after restrictions have been placed on pursuing non-US firms on American soil.

The US has a legal system in place which allows pension schemes and other investors, who have suffered damages due to corporate misbehaviour or fraud, to claim their money back through the courts. There is a jury who is inclined to pay out large sums of money, lawyers who are paid a contingency fee (a no win, no fee system), and legislation is generally in favour of investors. With a set-up like this, where plaintiffs have very little to lose, why would foreign investors opt to go somewhere else?

Well, the answer is that if the company accused of misbehaving is a non-US one, and has allegedly misbehaved away from the US, then they no longer have to fear an appearance in a US court.

This is due to what was decided one rainy afternoon last year – the day the Supreme Court ruled on Morrison v. National Australia Bank. The case saw foreign investors accusing the National Australia Bank of perpetrating a fraud involving a Florida subsidiary bank. It was claimed that the Florida connection was enough of a link to the US to justify the use of the American legal system. The bank said that the conduct took place in Australia and that the courts had no jurisdiction over the matter. The Supreme Court ruled in favour of the bank.

Ever since, ‘F-cubed’ cases have been denied a trial in the US; existing cases were thrown out and investors excluded from participating in the class actions.

The term ‘F-cubed’ refers to the foreign nature of the claim. The foreign investors, foreign issuers, and the alleged fraudulent conduct taking place in a foreign country.

As Dominic Auld, of counsel at Labaton Sucharow, who specialises in class action litigation, says, Morrison vs. National Australian Bank has affected the right of non-US investors, who bought and sold non-US securities and they bought them on non-US exchange: “This seems straightforward but nowadays many companies are truly multinationals and it is not always clear where the border lies”.

“Essentially the US doesn’t care where companies behave badly,” says Auld. “They only care where investors bought and sold securities. Conduct doesn’t matter anymore, this is the big change.”

So how has this affected all the foreign investors such as European pension funds?

If they bought US securities or bought securities in the US, then they can still go there and make use of the system. In Europe, however, prohibitively high fees have to be paid regardless of the outcome. There is often no jury to appeal to and no real legislation that allows for class action litigations.

“When you are a pension scheme, because of your fiduciary duties it is virtually impossible to risk your pensioners’ money to fund a lawsuit without ensuring you can cover the losses in some way,” says Auld.

“In much of Europe there is downshifting of the costs,” he adds. “In the US we don’t have that, we can never be held responsible for paying the costs of the other party. But in the UK for example that would be why we need the insurance. We can’t have our clients go to court and then basically end up paying a ton of money if the judge decides that he doesn’t like the case. That is not an option for a pension fund, they clearly cannot afford that.”

Stephen Everard, managing director of the Goal Group, a class action lawsuit specialist firm, explains that in the UK, like in other Northern European countries, class action legislation is non-existent. The former UK government, in an attempt to rush through the Financial Services Bill while still in power, left out clause 18-25 – which would have allowed consumers to pursue collective actions against companies that mis-sold to customers.

“Part of the problem for the government would be that if they brought in the legislation they would probably have to exclude the state owned banks,“ says Everard. “Obvious targets for lawsuits are RBS, Lloyds TSB and Halifax – all the banking groups that the public now own.

“So you would be bringing the final bill to the taxpayers, the bill for something they did not want in the first place. The government would have to exclude certain industries or certain institutions – imagine the implications.”

 

 

Not a closed case

There may be some hope however. For European class actions that used to be in the US, there has been some effort to try and consolidate the court process through the Netherlands, says Everard.

”The Netherlands have the Act on the Collective Settlement of Mass Claims (Wet Collectieve Afwikkeling Massaschade – WCAM). This Act puts them at the forefront for developments of mass disputes, since it is the only country in Europe with such legislation in place,“ he says.

“In the Netherlands you have the best chance to get a settlement,” agrees Auld. He explains that it is not the same system as in the US but based around it. The Dutch version requires parties to try and settle claims out of court first, which can be made binding by the court when they are agreed upon.

And who needs favourable legislation anyway? Auld believes companies could still be held responsible without such laws in the future. “Slowly you will see change. You’ll see US firms partnering with for example French lawyers, (to) have people on the ground.”

This sort of tie-up could work well with the option of using a ‘third party system’, as found in Australia, to fund lawsuits. Australian lawyers are not allowed to work for a contingency fee so there are third party funding firms who fund litigation. It is the funding companies that actually put out notices of fraudulent activity and then they gather the investors together to determine if they are interested in the case and want to go to court. If they do, then they hire lawyers.

Both Auld and Everard stress that the more cases will be filed outside of the US the more legislation we will see. The uproar over the fact that local pensioners lose their chance of a higher pension will be too important to ignore for politicians in the long run, they predict.

But before we reach that point all have to be onboard. Currently as many as 25 per cent of Northern European pension schemes do not participate in class actions over money that is officially theirs, according to GOAL. The firm reckons that if pension funds do not start taking up more cases then they will lose out on an estimated €1bn.

“I think there is a misconception that it is very difficult, very complex to do,” says Everard.

“True, it isn’t straightforward, there are loads of forms to fill in and lots of calculations to do. But what it comes down to is that if you do not participate you are probably not fulfilling your fiduciary responsibilities. There is money out there that is meant for the underlying pensioners which they are not going to get.”

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class action lawsuit

One of the largest legal battles in history all started when Stephanie Odle, an assistant manager at Wal-Mart subsidiary Sam’s Club, realized she was making over $20,000 less than a male assistant manager at a Sam’s Club where she had previously been employed.  Her case became the starting point for a 2001 class action lawsuit alleging that Wal-Mart systemically discriminates against women.

Wal-Mart has been fighting the case for about nine years and recently asked the U.S. Supreme Court to review the case. For Wal-Mart the stakes could hardly be higher.  If the company loses it could easily end up paying over one billion dollars in back pay and punitive damages on top of the already massive damage to the retailer’s image.

The current legal issue being sorted out is whether or not the case meets the criteria for a class action.  Wal-Mart is arguing that that since each store operates as an independent store the rules of class action lawsuit do not apply because the discrimination problem is not company-wide.

So far Wal-Mart has not been faring well in court.  The United States Court of Appeals for the 9th Circuit in San Francisco ruled 6-5 that the lawsuit should proceed as a class action lawsuit.  This is the fourth court decision upholding the case’s status as a class action.

Wal-Mart says the women should bring their cases against individual stores, so the cases would be smaller and less unwieldy. Of course there is no established size limit on class action lawsuits, so it is not surprising that this argument has not helped up so far.

Others have argued in favour of Wal-Mart that the immense scope of the case prevents individual women from presenting their own cases and getting their day in court.  The Supreme Court will have the final word on the matter, and decide whether or not it meets the current standards for a class action suit.

class action

Either way, it is a lose-lose situation for Wal-mart, and the company is desperately looking for creative class action lawsuit solutions.  It is less clear how the case will affect British retailer ASDA, which is owned by the Leeds based Corinth Services Limited, a subsidiary of Wal-Mart.

ASDA has not had the same problems with sex discrimination as Wal-Mart. It is possible, however, that the company’s association with Wal-Mart during a time of intensely anti-Wal-Mart PR could tarnish its image.

Since the lawsuit began Wal-Mart has started hiring more women, and promoting more women to management positions.  Due to this response by Wal-Mart, Ms. Odle, said “We’ve already won because they already had to change their policies toward women because of us”.

Whatever decision the Supreme Court makes, it will have a significant impact on how class actions involving large numbers of plaintiffs and still larger companies are handled.

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Class actionGoal Group, the class action specialists, is pleased to announce receiving compensation of approximately USD 1.9 million for its clients and their underlying customers in the General Motors distribution.

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Iceland's volcanoThe Met Office has been accused of using a scientific model based on “probability” rather than fact to forecast the spread of the volcanic ash cloud that made Europe a no-fly zone and ruined the plans of more than 2.5 million travellers in and out of Britain.

A senior European official said there was no clear scientific evidence behind the model, which air traffic control services used to justify the unprecedented shut down.

Eleven major British airlines joined forces last night to publicly criticise Nats, the air traffic control centre, over the way it interpreted the Met Office’s “very limited empirical data”.

Legal experts suggested passengers and airlines may be able to sue the Government for more than £1 billion in compensation.

Flights in and out of Britain are scheduled to resume today for the first time in almost a week after Lord Adonis, the Transport Secretary, said there had been a “dramatic decrease” in the volcano’s activity.

The announcement last night that restrictions would be eased was accompanied by arguments over whether the shutdown had been an over-reaction.

Much of the blame was directed at the Met Office’s Volcanic Ash Advisory Centre (VAAC). It provided the initial warning, which triggered the European-wide ban via Eurocontrol, the air traffic control centre in Brussels.

Of the 40 test flights across Europe, including a British Airways flight on Sunday, none found any evidence of ash in jet engines, windows or lubrication systems.

In a joint letter to Lord Adonis, the 11 British airlines said the official response to the volcanic eruption presented “a clear case for government compensation”.

Jeff Zindani, of Forum Law solicitors, said: “Legal analysis suggests that there may be a raft of class actions brought by airlines and companies that are dependent on air travel to move their goods.

“This may well open the way for wider litigation against the Met Office and other government agencies that are found to have failed in their duty of care. The damages and legal costs could break the £1 billion mark.”

Andy Harrison, the chief executive of easyJet, said the cost could run into “hundreds of millions of pounds”. The cost to the wider British economy has been estimated at £500 million.

British Airways announced it planned to begin flying from London from 4pm after Willie Walsh, its chief executive, said the blanket ban had been “unnecessary”. Virgin Atlantic said it hoped to operate flights from London from 7pm.

David Greene, the head of litigation at Edwin Coe, said legal action was more likely to be successful if taken by a large group of tourists and companies in a class action.

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In recent days there has been a great deal of interest in the Investment bank Goldman Sachs. The company, which was once a jewel in America’s economy, now in the wake of their government bailout, the company has become public enemy number one and may have to face a class action lawsuit, the likes of which we have not yet seen.

There are several reasons why Goldman Sachs is now viewed by many as a morally corrupt company and the results of their malpractice could yet deal a major blow to the US economy and others around the world and result in class action.

Lloyd Blankfein - Goldman Chief Executive

Lloyd Blankfein – Goldman Chief Executive

Lloyd Blankfein, Goldman’s chief executive, admitted in a voicemail to all staff yesterday that the attention that followed the securities fraud charges was “certainly uncomfortable”, but that the board and management committee were addressing the charges.

The bank also issued a statement again denying the US Securities and Exchange Commission accusations that it or its employees tricked clients into buying bad loans in 2007. Fabrice Tourre, who did the deals over which Goldman has been charged, has been put on paid leave and is at home.

Goldman also faces the loss of lucrative British government work — including a host of planned privatisations — after the Prime Minister described the bank as morally bankrupt.

Why do so many hate Goldman Sachs?

• Lloyd Blankfein, Goldman’s chairman and chief executive, and Gary Cohn, the bank’s president, annoyed the US Administration by suggesting that the bank would have survived the financial crisis without government help. They reversed that position in a letter to shareholders two weeks ago, saying: “Goldman is grateful for the indispensable role governments played.”

• Goldman incensed politicians before its 2009 results announcement in January by apparently planning to pay record bonuses. It cut compensation back at the last minute to $498,000 (£300,000) per employee, lower than its peak payouts in 2007 of $661,000.

• Mr Blankfein, told The Sunday Times in November 2009 that he was doing “God’s work”. The comment went down badly with the Government and the public at a time when thousands of people were losing their jobs every month as a result of a crisis caused in part by financial firms.

• Goldman was in the spotlight for the wrong reasons again in February over its role arranging contentious derivatives trades for Greece, which helped the country to massage its public finances.

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Goldman SachsIt is being reported that the FSA are to look into the UK activities of the beleaguered Wall Street bank which the US regulator has accused of a $1bn fraud, and now has to contemplate an unprecedented class action lawsuit on an epic scale.

The Embattled Wall Street firm Goldman Sachs is now facing an investigation by the City watchdog, the Financial Services Authority, following the $1bn (£650m) fraud allegations brought by the US regulators.

Their defence?

Goldman Sachs insisted its actions were “entirely appropriate” and that it would “vigorously contest” the charges brought by the US Securities and Exchange Commission (SEC).

The statement comes ahead of the bank’s first-quarter results tomorrow, which are expected to show it has been able to earmark $5bn for staff pay and bonuses.

Goldman believes the charges are politically motivated and come at a time when President Barack Obama is trying to force through legislative changes to clean up the US banking industry, which may lead to further securities class actions.

Action across the pond!

The FSA confirmed today that it was investigating the events. “As you would expect the FSA is investigating the circumstances of this case and whether there are any implications for the UK-regulated entities of Goldman Sachs.

If there are, we will take appropriate action. We are working closely with overseas regulators and will co-operate fully with the SEC investigation” the FSA said.

In a detailed statement today, Goldman stepped up its defence. It said: “Based on all that we have learned, we believe that the firm’s actions were entirely appropriate, and will take all steps necessary to defend the firm and its reputation by making the true facts known.”

 

What are the charges?

Goldman Sachs facing chargesThe SEC’s 22-page suit charges Goldman with working with US hedge fund, Paulson & Co, to structure and sell a complex package of mortgages to clients while Paulson took a “short” position betting that the same mortgages would fail.

The mortgages were packaged into a collateralised debt obligation (CDO) – the instruments at the heart of the 2007 credit crisis – and lost investors more than $1bn in just nine months. During the same period, Paulson made a similar amount in profit. The SEC asserts that Goldman did not disclose Paulson was on the other side the transaction.

 

Tip of the Iceberg?

Analysts say that the case against Goldman could be the tip of a class action iceberg. A Dutch bank, Rabobank, accused Merrill Lynch over the weekend of a similar misdemeanour, claiming that Merrill marketed a collateralised debt obligation (CDO) while omitting to mention its relationship with a hedge fund betting against the product’s success, resulting in a loss of $45m. Merrill called the allegation “unfounded”.

Merrill, Citigroup and Deutsche Bank were the top three writers of mortgage-related CDOs in 2006 and 2007. All three banks saw their stock drop by more than 5% when the SEC (Securities and Exchange Commission) announced charges against Goldman on Friday.

Conclusion

The charges against Goldman Sachs are, for most, a welcome sight because of their dishonesty to investors and clients alike. Hopefully the case against the bank is a strong one with irrefutable evidence.

However there is no doubt Goldman Sachs will do everything they can to defend themselves. They will use all their cunning to try and once again sell us a story of innocence. Don’t believe it!

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