Jeff Whalley, Herald Sun
FOUR giant US pension funds are preparing to sue the Commonwealth Bank in a move dramatically widening the fallout from the money-laundering scandal that has engulfed the lender.
The pension funds — including the $US224 billion ($292 billion) California State Teachers’ Retirement System — are among “a significant number” of institutions planning to launch a fresh class action against the bank.
It marks a bombshell for new CBA chief Matt Comyn, who took the reins of Australia’s biggest bank yesterday.
The pension funds, which have assets totalling almost $US500 billion, have signed up for a case being prepared by boutique Melbourne-based litigation firm Phi Finney McDonald.
Legal experts say that if the class action is successful, the bank could face a hit of $100 million.
The action will allege misleading or deceptive conduct by the CBA, along with breaches of continuous disclosure rules, over a period of more than three years.
It will centre on claims levelled at the bank last year by the anti-money-laundering and counter-terrorism-financing watchdog, the Australian Transaction Reports and Analysis Centre, or Austrac.
Austrac sued the CBA last August, saying the bank failed to report more than 50,000 suspicious transactions carried out through its ATM network.
CBA shares then fell, delivering a blow to the investors now lining up to sue the bank.
Then chief executive Ian Narev resigned amid the scandal, although the bank has said his departure was unrelated.
It would be the second class action the bank is facing over the Austrac allegations after law firm Maurice Blackburn flagged an action last August and launched it in October.
But this lawsuit would significantly expand the scope by covering a far broader period, meaning it is open to many more investors.
The proposed Phi Finney McDonald class action is open to investors who bought CBA shares between June 16, 2014, and August 3, 2017 — about a year longer than the period covered by the Maurice Blackburn action.
Phi Finney McDonald director Odette McDonald said it was being driven by large-scale “institutional investors”.
It is also open to retail, or “mum and dad”, investors who brought shares during the period in question.
The bank tapped investors for an extra $5.1 billion during the period covered by the class action.
Ms McDonald said “sophisticated institutional investors” approached Phi Finney McDonald after Maurice Blackburn launched its action.
It is believed Phi Finney McDonald decided on the broader period because of documents unearthed by Austrac that show CBA knew in 2014 of a relevant coding error.
Ms McDonald said “a significant number” of institutional investors from Australia and overseas had already signed up for the potential action.
“We consider that the integrity of CBA’s anti-money laundering and counter-terrorism financing systems, and compliance with laws and directions of regulators, was of incredible importance to CBA shareholders”, she said.
“This is clear from the proactive steps investors have taken in driving this action.”
In a one-line statement last night, a CBA spokesman said: “As we have not received any formal communications or documents in relation to any such (legal) action, we are unable comment further.”
Phi Finney McDonald is run by former Slater and Gordon litigation experts, including star class-action lawyer Ben Phi, Tim Finney and Ms McDonald.
A “who’s who” of heavy-hitting US pension funds are driving the action against the CBA.
The enormous California State Teachers’ Retirement System, known as CalSTRS, is the second biggest public pension fund in the US, with assets totalling about $US224 billion.
Others to have signed up include the Teacher Retirement System of Texas, or TRS, which has about $US146.1 billion in assets, and the Massachusetts Pension Reserves Investment Management Board, holding about $US71.9 billion.
The Colorado Public Employees’ Retirement Association, or PERA, holding about $US48.9 billion worth of assets, has also joined the proposed class action.
Therium Australia, a subsidiary of British litigation funding heavyweight Therium Group, is funding the class action.
“Therium’s funding terms are some of the most competitive we have seen in the Australian market, and have been well received by investors”, Ms McDonald said.
In a statement, CalSTRS described the funding terms as “a major step forward in the Australian litigation funding market”.
This post first appeared on the Herald Sun.