guardian.co.uk,
Juliette Garside, Sunday 1 January 2012
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| Eric Daniels, former Lloyds Banking Group CEO, has been named in a court action filed in US. Photograph Heathcliff O'Malley / Rex Featur |
Lloyds Banking Group's former chief executive, Eric Daniels, and previous chairman,
Sir Victor Blank, have been accused of "reckless disregard for the
truth" in a class action lawsuit filed in the US by a retired British sea captain.
Lawyers say
that shareholders lost an estimated £14bn as Lloyds shares crashed after news
of its emergency acquisition of its troubled rival HBOS in 2008. About 1,400 US
residents and numerous institutions that bought Lloyds TSB shares on the New
York stock exchange could claim compensation.
The case is
being fronted by a 79-year-old former merchant navy captain, Albert Ross, who
is originally from Scotland and now lives near New Orleans. He and his wife
risk losing their home after the family's investment in Lloyds wiped more than
$340,000 (£220,000) from their retirement fund.
Ross, a
writer of seafaring novels including the self-published Truth, Half Truth and
Lies, told reporters: "My wife and I face losing everything we have worked
for. It is not just our home but our dignity. We are proud people who have
worked hard to maintain our independence only to see everything stripped away
from us."
Days after
the HBOS acquisition was announced in September 2008, lawyers say that the
troubled British bank was "technically insolvent". Because
information was kept back, the market did not begin to understand the true
nature of its financial woes until February 2009, when a £10bn annual loss was
reported.
Announcing
the merger, Daniels described it as "a fantastic deal", saying that
the combined companies would have a "robust capital position".
However, by 1 October, HBOS had been forced to take emergency loans from the
Bank of England, which later peaked at £25.4bn, and borrow an estimated $11.5bn
from the US Federal Reserve.
During an
analyst call on 13 October, Daniels continued to assert that the HBOS
acquisition was a "very good deal" for shareholders. Papers filed by
lawyers acting for Ross claim the reverse was true: "At that point, HBOS
was not only insolvent on a cashflow basis, but on the basis that its assets were
substantially exceeded by its liabilities."
Reference
is made to a subsequent report by the Bank of England governor, Mervyn King,
who said that without the emergency loans, HBOS "would not have
survived". The claim is that Blank and Daniels "acted with knowledge
of or reckless disregard for the truth in omitting and/or misrepresenting
material facts" regarding the bailout, which if true could put them in
breach of the US Exchange Act.
"United States securities law is very clear about the heavy consequences of withholding
important information which investors are entitled to know when purchasing
shares," said Jim Swanson, a partner for the firm bringing the suit.
Lloyds has
been listed on the New York stock exchange since 2001, and is bound to report
company information in accordance with US market rules. If the Securities and
Exchange Commission, the US regulator, pursues its own investigation, it can
impose hefty fines. Last year Goldman Sachs paid a record $550m after
misleading investors in the marketing of sub-prime mortgages.
Lloyds
declined to comment and spokesmen for Blank and Daniels did not respond to
requests for comment.
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| To
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