A court has approved the payment of more than $19 million to Oasis Fund Management (Oasis FM) and three other parties, ending a lengthy battle with Royal Bank of Scotland (RBS) over failed investment products, Principal Protected Income Notes (PINs).
The $19.5 million settlement, approved this week by Justice John Sackar in the New South Wales Supreme Court, ends a four-year legal stoush between Oasis FM, Oasis Asset Management (Oasis AM), and two investors against RBS in Australia (known as ABN AMRO Bank N.V. at the time of the PINs failure) and Absolute Capital Investment (ACIL) managing director Deon Joubert.
In 2008, Oasis FM and the three other parties alleged that ABN AMRO Bank N.V. and Joubert engaged in misleading or deceptive conduct by failing to disclose the “true nature” of the underlying transactions to products, 2003 PINs and 2004 PINs, in particular through the information memoranda.
On May 2003, Oasis AM made an investment of $63.3 million in the 2003 PINs, at the request of the 2003 investors, court documents said.
“The 2003 investors received quarterly coupon payments at 8 per cent per annum until June 2007 totalling $21.7 million, at which time the product failed,” it said.
A year later in 2004, $1.8 million was invested by OAM at the direction of the 2004 investors.
The investors also received quarterly coupon payments at 7.5 per cent per annum until June 2007 totalling $486,960, documents said.
After the PINs products failed and ACIL went into receivership, and then liquidation, little monies were received by Oasis FM on behalf of the PINs Investors other than what was recovered by ACIL’s receivers.
As part of their claim, the parties alleged that the PINs information memorandums and other documents gave the impression that 100 per cent of the funds invested were “working towards generating the 8 per cent return required”, court documents said.
They also claim that the PINs product had a “principal protection feature”, in that ABN AMRO Bank N.V. was assuming the risk of any loss of principal up to 25 per cent.
However, the case revealed that 75 per cent of the amount invested was applied towards generating the required 8 per cent return, with the remaining 25 per cent held by ABN AMRO Bank N.V. in cash and which generated “very limited return”.
“ABN AMRO Bank N.V. was therefore assuming no risk because it held the balance (26 per cent) in an account as security for its ‘principal protection’,” court documents said.
In 2010, the parties sought damages against ABN AMRO Bank N.V. and Joubert in contravention of the Trade Practices Act 1974, the Corporations Act 2001, the ASIC Act 2001 and the Fair Trading Act 1987.
There were also questions raised regarding the contractual arrangements between ABN AMRO Bank N.V. and an ACIL member company, Cederra Structured Investments Limited.
ABN AMRO Bank N.V. and Joubert denied the allegations in the proceedings.
After a number of failed attempts to reach settlement, parties entered into a $19.5 million deed of settlement on 20 September last year.
Under the terms of the settlement, an amount of $3.5 million is to be used for Oasis FM and the parties costs incurred in the proceeding, including all costs associated with the application.
The amount of $100,000 is also to be provisioned by the trustee for legal costs that may be incurred in administering the settlement.
Despite a submission from an investor who disputed the settlement amount due to “a lack of transparency in the process”, Sackar did not regard the investor’s comments to “hold up the process”.
“In my opinion the settlement reached was indeed fair and reasonable,” he said in his judgement, dated 21 May.
“If I may say so, the principal beneficiaries are indeed in my opinion the members of the group concerned. Whilst the amount each will receive will involve accepting an amount less than that which they invested, it is nonetheless reasonable in all the circumstances.”
