Institutional Investors Back Lawsuit Against Fortis for $2.5 Billion Loss

As part of the Stichting Investor Claims against Fortis Foundation, institutional investors have launched a claim accusing Fortis of making misrepresentations to the market and to its shareholders.

(January 10, 2011) — Institutional investors have accused Fortis NV, now known as Ageas and, prior to its collapse in 2008, the largest financial services company in Belgium and the Netherlands, of releasing misleading information about the company ahead of its downfall.

Investors have launched a claim accusing the Dutch/Belgian firm of enticing them to invest in the company as it was knowingly on the brink of collapse in 2008. The claim has alleged that between May 29, 2007 and October 14, 2008, Fortis’ inaccurate assessments caused shareholders to continue to invest in the troubled bank, which was heading toward insolvency. The claim argues that the Fortis board failed to provide timely, accurate information about its exposure to sub-prime mortgages in the US while gearing up for a major share issue during the summer of 2007 to finance the acquisition of ABN AMRO Bank.

“This is the appropriate reaction to the fraud perpetrated by Fortis against investors who relied upon the integrity of the market and the compliance of Fortis with its legal obligations,” Foundation director Alexander Reus said in a statement. The Foundation is currently being backed by US securities law firms Grant & Eisenhofer and Barroway Topaz as well as more than 140 institutional investors from Europe, the Americas (including the US) and Asia who claim they lost more than €2bn ($2.5bn) on their Fortis investments. In addition, about 2,000 individual investors have indicated an interest in joining the action.

The Foundation’s Dutch counsel Jan Hendrik Crucq added in a statement: “We are well prepared to pursue this case and believe that the Foundation is the correct representative body for all Fortis investors worldwide who are not able to pursue their rightful claims through US class actions. We believe the Dutch system will be equally effective in protecting their rights.”

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The Foundation’s action — brought for the Utrecht court in the Netherlands — marks a major step in pursuing international securities claims in the wake of last year’s US Supreme Court decision in Morrison v. National Australia Bank, which ruled a class action by “foreign investors who have bought a stake in foreign companies on foreign stock markets” was inadmissible in a US court. According to a release, Barroway Topaz partner Stuart Berman called the Foundation “a historic new vehicle to address shareholder rights in the European market,” adding that the litigation offers a valuable template for investor recoveries outside the US.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

The prominent former public official, who was in charge of the New York City public school system for eight years, rails against pension accounting assumptions in a Monday opinion piece.

(January 10, 2011) – Former New York City public school chancellor and current New Corporation executive Joel Klein is blasting public pension accounting.

In a Monday Wall Street Journal opinion piece, Klein, who left the New York school system in November to lead News Corporation’s education division, writes that while “…Bernie Madoff pretended he was getting 8% returns on his clients' investments—and he's in jail for running a Ponzi scheme,” public sector pensions see this “make-believe” as “common.”

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Klein is referring to the well-known practice of assuming anywhere between 7% and 8.25% returns for public pension funds, “regardless of what the investments actually earned in the market,” he writes. Critics often target this pension accounting as illegitimately allowing states and municipalities to avoid contributing to their pension systems, which are notoriously underfunded. The recent case of the Pittsburgh pension system, which narrowly avoided having to hand their pension management over to the state, highlights the plight of such capital pools.

Klein, like other pension commentators such as financial author Roger Lowenstein, chocks this practice up to political expediency. “While irresponsible, this kind of behavior makes good political sense,” he writes. “After all, people run for office in the short run, and money spent now—rather than put aside in a pension reserve—is more likely to garner votes.”

Like for Madoff, Klein writes, the “[inevitable]… day of reckoning” for state and municipal entities from across the country has arrived. “Defined-benefit pensions helped bring the once-vibrant U.S. auto industry to its knees,” he writes, adding that “the same kind of pensions are now hollowing out public education.” While controversial, Klein’s view can be seen to be supported by recent studies, one of which predicted that New York taxpayers will have to add billions in dollars annually to their public pension systems over the next five years.

While Klein’s view is not novel, his closeness to the issue will likely give rise to further pressure on America’s public pensions, which have become a hot topic as of late with state capital limited and the economy stubbornly refusing to grow at a pace many hope for.

To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>