The IOOF Holdings Limited (ASX: IFL) share price could come under pressure today after the embattled financial services company revealed that it has been served with a class action.
This certainly is disappointing news for current shareholders considering the IOOF share price is already down 33% since this time last year.
What is the class action?
Late on Friday IOOF announced that it has been served with a class action proceeding filed by Quinn Emanuel Urquhart & Sullivan in the Supreme Court of New South Wales on behalf of certain shareholders of IOOF who acquired shares between May 27 2015 and August 9 2018.
According to the class action's website, Quinn Emanuel's claim against IOOF arises from evidence given by the wealth manager at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The evidence concerned breaches by IOOF's subsidiaries, and directors and officers, of their obligations as superannuation trustees.
Following these revelations at the Royal Commission, and the announcement of various proceedings against IOOF's subsidiaries and officers related to those breaches by APRA, IOOF shares lost over 35% of their value.
Quinn Emanuel alleges that between May 27 2015 and August 9 2018 IOOF contravened its continuous disclosure obligations under the ASX Listing Rules and engaged in misleading or deceptive conduct.
IOOF has called the class action ''speculative and without foundation" and reiterated that it takes its continuous disclosure obligations seriously. Adding that it "does not engage in misleading or deceptive conduct. IOOF intends to defend this claim."
Should you invest?
I suspect the market has been expecting a class action to be served for some time, so this news may not have a huge impact on its shares today.
But even if its shares were to come under significant pressure, I would suggest investors resist the temptation to pick them up on the cheap.
Overall, I think it would be best for investors to stay clear of the company until everything has blown over and it's back on a path to sustainable growth.
Until then, I would sooner buy the shares of industry peers Macquarie Group Ltd (ASX: MQG) and Magellan Financial Group Ltd (ASX: MFG).
