Costs of Edinburgh's securities law breach balloons
Edinburgh Fund Managers says the cost of its breach of securities laws in New Zealand has ballooned from around £2 million to nearly £6 million.
Thursday, August 28th 2003, 2:39AM
Consequently any securities allotted during the breach period of June 2001 to April 2003 are technically invalid and the company could be forced to refund the original investment and pay investors 10% annual interest.
Edinburgh earlier said that if it had to make these payments its ultimate exposure (the difference between the current unit price and original subscription amount, plus the interest) "could be in the region of £2 million".
The company says it has been working through the complex factual and legal issues with its advisers in the UK and New Zealand, to clarify its potential exposure.
One of the key issues is whether any payment should be made in sterling or New Zealand dollars.
"Whilst Edinburgh believes that there are reasonable arguments for the payment to be made in sterling, it has been advised that there is a material likelihood that a New Zealand court would require the payment to be made in New Zealand dollars to those investors who originally made their subscription payments in that currency."
Edinburgh says if this is the case its potential exposure could increase to £5.9 million. Added to that is the, plus the cost of future interest for the period to settlement, accruing at 10% annually on subscriptions of £16.7 million.
Edinburgh believes that there is an industry-wide issue in New Zealand concerning the non-compliance and it is working with "certain other similarly affected fund managers" on developing a collective solution to the problem.
It expects to have a greater degree of clarity on the industry-wide issues by the end of September.
"At that point, if Edinburgh cannot see a ready solution, it will decide whether to raise validation proceedings in the New Zealand courts or to investigate such further steps as it may be able to take to crystallise and cap the liability,” the company says.
Edinburgh has an insurance policy in place that could potentially provide up to £5 million of cover in the event that a valid claim is made and it is currently discussing whether it has a valid claim with its underwriters and their lawyers.
Edinburgh continues to give serious consideration to bringing legal proceedings in the New Zealand courts to seek to validate any technically void allotments.
“If successful, this action would eliminate any statutory liability to make the payment,” it says.
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