The accident-prone QBE Insurance Group Ltd (ASX: QBE) has suffered another hiccup this morning after law firm Maurice Blackburn announced its intention to launch a class action against the underwriter.
The lawyers will allege that QBE breached its continuous disclosure obligations under the ASX Listings rules and Corporations Act by failing to keep investors properly informed of its financial position.
Back in 2012/13 QBE was finding North American insurance and reinsurance markets too hot to handle, yet painted a relatively rosy picture of the operations at its half-year results announcement in August 2013. Indeed, the group forecast a full year profit of more than $1 billion as shares traded around the $15 mark.
Only four months later in December 2013 QBE shocked some by revealing that its North American operations were struggling and that as a result it expected to swing to a full year loss of around $250 million after write-downs.
Consequently, shares fell around 30% over two days and the credibility of QBE's management team fell to close to zero.
The lawyers at Maurice Blackburn will be eager to prove QBE failed in its continuous disclosure obligations, although investors seem unconcerned with the stock up 2.5% to $13.30 in trade today.
Eligible shareholders who believe they were misled and suffered a financial loss as a result can effectively join the action on a no risk basis as costs are borne by a litigation funder.
However, before investors get too excited it's worth noting the compensation available if successful will be rather small – it will likely be based on a percentage of losses incurred on shares bought at inflated prices over the period in question.
Moreover, the net compensation paid to class action members will be after the litigation funder has taken a hefty percentage of the total compensation awarded and paid the lawyers at Maurice Blackburn its own likely whopping fee for its services.
The fee-hungry lawyers at Maurice Blackburn may be eyeing up some bumper bonuses this year given they also have higher education business Vocation Ltd (ASX: VET), pay-day lender Cash Converters International Ltd (ASX: CCV) and winemaker Treasury Wine Estates Ltd (ASX: TWE) in their sights for compensation claims.
Others riding the litigation funding and class action gravy train include IMF Bentham Ltd (ASX: IMF) and Slater & Gordon Limited (ASX: SGH).
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