Law firm Quinn Emanuel Urquhart & Sullivan commenced legal proceedings against AMP Limited in the Supreme Court of NSW in May, alleging that the publicly listed wealth giant had breached its continuous disclosure obligations and made misleading statements between May 2012 and April 2018.
This, the lawyers argued, had led to “significant” losses being incurred by shareholders.
Specifically, it was alleged that AMP had failed to disclose its practice of charging customers fees for financial advice without providing advice, then reportedly lied about it to the Australian Securities and Investments Commission (ASIC).
The “fees for no service” scandal, which came to light during royal commission hearings, slashed more than $2 billion from AMP’s market value, also kicking it off the list of 20 most valuable companies on the Australian Securities Exchange (ASX).
AMP has admitted to charging customers fees for advice that it had not provided, but confirmed that it will “vigorously defend” itself in this lawsuit as well as “all similar proceedings” on the grounds that the firm was not required to disclose such information to shareholders as it “was not material to AMP’s share price”.
“The alleged practice of charging fees for no service in certain circumstances was not material having regard to the number of affected customers (approximately 3,500) or the amount of fees paid for no service (less than $600,000). The practice was ceased and has or will be remediated,” AMP said in an update.
“It was canvassed extensively during Mr Regan’s testimony on 16 April 2018 without causing any material movement in AMP’s share price on that day.”
The firm further admitted to the misrepresentations it made to ASIC in regards to charging fees for no advice, but claimed that it notified the corporate regulator of its inappropriate practices in October 2017 when it provided the Clayton Utz report, which examined its Buyer of Last Resort (BOLR) policy.
“Those misrepresentations did not have the effect of misleading ASIC in any material way in respect of the practice of charging fees for no service. ASIC has been conducting a detailed investigation of these matters, which was well advanced at the time the royal commission commenced, and had a detailed understanding of the practice,” AMP said.
“The matters raised at the royal commission in respect of the practices were already known by ASIC as a result of its investigations.”
The wealth firm further argued that its regulatory dealings with ASIC were confidential and are therefore “not the kind [of information] that would be expected to be disclosed to the market”.
AMP additionally defended its “mischaracterisation” of the Clayton Utz report, arguing that ASIC was aware that the bank had appointed a member of the firm’s external legal panel to conduct the review.
“There is nothing about the independence of the Clayton Utz report that required disclosure,” AMP said.
“Further, Clayton Utz did not make any changes to the report as a result of communications with AMP which Clayton Utz did not agree with, and Clayton Utz carefully verified the accuracy of the statements in the report.”
Quinn Emanuel’s shareholder class action suit is one of five being pursued against AMP, with law firms Slater and Gordon, Phi Finney McDonald, Maurice Blackburn and Shine Lawyers leading the others.
AMP is seeking to have all the class action suits transferred to the NSW Supreme Court, and it will appear in the Federal Court in Melbourne on 14 August to make its case.
Following a report by ABC’s Four Corners on Monday (23 July), AMP has also come under scrutiny for allegedly “pressuring” its financial advisers to sell in-house products even if they were unsuitable for customers.
Jan Saddler, who is leading Shine Lawyers’ shareholder class action suit against AMP, said that the behaviour is similar to what the law firm has uncovered through its investigation into Westpac’s practices.
“The fact that there was a lot of pressure on financial advisers to only recommend AMP products to AMP clients is alarming,” the leading counsel said.
“This would be fine if the product is the best for client’s circumstances. The message being conveyed by this whistleblower suggests that there was an expectation that AMP would be recommended regardless of whether or not there were better products on the market.”
Ms Saddler noted that under the Future of Financial Advice (FOFA) reforms, financial advisers are obligated to act in the best interests of their clients, meaning that they should consider a range of products when assisting their clients, not just the products offered by the companies they work for.
The counsel said that Shine Lawyers is now investigating the new allegations.
“If Westpac and AMP are doing it, it’s another example of the systemic issues within the industry,” Ms Saddler said.
“Shine are investigating this very issue against AMP and other banks more broadly.”