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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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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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EMMA SADOWSKI – City AM

Banks have walked away from potentially paying out billions of pounds in class action settlements, after a clause in the Financial Services Bill surrounding the matter was struck before the bill passed though parliament.

The Financial Services Bill, which reached Royal Assent during the wash-up period last week, saw clauses 18 to 25 struck out by financial services secretary Lord Paul Myner before being passed into law.

If the clauses had been included, it would have meant that class action suits, which often equate to more than £20m a claim, could be taken against financial institutions.

The move has been seen by some groups as a blow to shareholder rights and corporate governance.

“A number of European investors including those in the UK – currently have no right to redress and no efficient way to bring a joint lawsuit despite having suffered fraudulent or irresponsible corporate behaviour,” said Stephen Everard, managing director at Goal Group.

Lawmakers, however, have said the issue of consumer redress is likely to come up before parliament again, as bodies such as the Civil Justice Council will continue to lobby on the matter.

Last year, the average amount of class action settlements rose to $37m (£23.9m), according to Cornerstone Research.

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Pension funds are missing out on a potential share of $12bn (£6bn) in unclaimed litigation settlements in the USA, according to a class action specialist.

A study by GOAL Group found class action cases carried out between 2000 and 2007 amounted to $3.6bn (£1.8bn) in unclaimed settlements for European investors, with around 25% of this figure attributed to UK investors.

Stephen Everard, managing director of GOAL Group, said despite the large amount going unclaimed, there had been a significant growth in interest from UK local authority pension funds in pursuing litigation to recoup losses.

“I think getting into litigation with overseas companies has probably been outside of the traditional thinking for some local authorities. But since the Bath and North Somerset and North Yorkshire pension funds teamed up in a class action, things have started to move forward. More are starting to recognise the sheer enormity of the money that is out there,” said Everard.

“The advantage of being a lead plaintiff is that you can dictate the class period and can get three or four times more than other participants in the case, so you can have some influence. Some are more proactive than others and they recognise that there is something they should be doing.”

Everard said eight local authorities had either signed up or come to his company expressing an interest in pursuing class action litigation, with many realising it is part of

their fiduciary duty to file claims on behalf of investors. He said the Avon pension fund’s role in becoming lead plaintiff against GlaxoSmith-Kline, has had an influence on other local authorities.

“A UK authority may be concerned that it is an admission of investing in the wrong company, but I think in the Bath and North Somerset case, there is a positive kudos in being lead plaintiff, as undoubtedly a large number of other investors will have shares in GlaxoSmithKline.”

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