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Lawsuit Against Fortis Over Massive Misrepresentation Ahead of Bank's Collapse


Washington, DC: A specially formed foundation representing investors in the U.S., Europe, the Middle East and Australia has brought a unique shareholder fraud action in connection with the collapse of Belgium-based financial services company Fortis N.V. Currently known as Ageas NV/BV, Fortis, which had huge exposure to subprime loans in the U.S., was rescued by the Dutch, Luxembourg and Belgium governments in 2008 following its acquisition of Dutch bank ABN Amro. Valued at over euro 11 billion, the bailout was among the largest on record among European banks.

The foundation, officially known as Stichting Investor Claims Against Fortis, has filed suit in Utrecht Civil Court seeking declaratory judgment against Fortis for defrauding investors through a 2007 rights issue to acquire ABN Amro -- the offering raised more than euro 13 billion, most of which was wiped out during the financial crisis. Although the investor group cannot recover damages under current European and American securities laws, Stichting's liability action allows shareholders to join the foundation and position themselves to bring damage claims under the Dutch legal system.

To date, more than 140 institutional investors, including many of the largest pension funds in Europe, have signed up to join the foundation, along with more than 2,000 individual claimants. Shareholder losses are estimated in the tens of billions of euros, with some investors losing up to 90% of the value of their Fortis holdings. Over a 12-month period from 2007-08, shareholder equity at Fortis fell from euro 33 billion to euro 6.8 billion.

The foundation alleges that Fortis and its officers and directors, as well as lead underwriter Merrill Lynch UK Holdings, misled investors about the bank's financial health from the fall of 2007 up to just three days prior the government bailout on Sept. 29, 2008. The foundation contends that Fortis, at the time the largest financial institution in the Netherlands and Belgium grossly misrepresented the value of its collateralized debt obligations and the extent to which its assets were held as subprime mortgage-backed securities. The lawsuit also accuses Fortis of downplaying risks associated with its ill-fated decision to acquire ABN Amro in a consortium with the Royal Bank of Scotland and Spain's Banco Santander Central. The foundation seeks to represent investors who relied on information published by Fortis from May 29, 2007 through Oct. 14, 2008.

European regulators have previously determined that Fortis executives misled investors in numerous public disclosures during the September 2007 rights issue used to raise capital to fund the ABN Amro acquisition. A joint investigation by the Belgian Banking, Finance and Insurance Commission and by the Dutch Authority for the Financial Markets culminated in a finding against Fortis in February 2010, concluding that the company engaged in market manipulation by issuing incorrect and misleading statements during the 2007-08 period. In October, the Dutch AFM imposed euro 288,000 in fines on Fortis for various violations of the Dutch Securities Act – a record penalty against a Dutch bank. The Dutch Enterprise Chamber in Amsterdam launched a separate 18-month inquiry into the management practices at Fortis. In June 2010, the Chamber published a report harshly criticizing the bank for its failure to communicate its financial problems to the market in a timely fashion. The Chamber is expected to enter a second phase of its investigation to determine potential sanctions.

Note: The Stichting Investor Claims Against Fortis ("Foundation") is an "open" foundation pursuant to Article 3:305a of the Dutch Civil Code. The Foundation's purpose includes: (1) protecting the rights of all Fortis investors in the establishment of proper corporate governance; (2) pursuing any wrongdoing during the Relevant Period on the part of Fortis, its management, auditors and other advisors; (3) establishing and determining whether there was any legal liability on the part of Fortis, its former management, auditors and advisors in connection with the demise of the company in October 2008; and, (4) obtaining compensation for all investors who suffered losses as a result of Fortis' mismanagement and misrepresentations during the Relevant Period.

International Lawsuit Against Fortis Bank

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Published on Jan-10-11


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