Class action threat after failed ANZ appeal over controversial 2015 equity raising

A Federal Court defeat has opened the door to a potential class action against ANZ over a controversial $2.5 billion equity raising led by now chief executive Shayne Elliott nearly 10 years ago.

The Federal Court on Wednesday rejected an appeal by ANZ against a decision last year that found the bank breached its continuous disclosure obligations in 2015 by not revealing that $754 million of shares were placed with underwriters because of a weak take-up by institutional investors.

Justices Brigitte Markovic, Michael Lee and Catherine Button ordered that ANZ pay a $900,000 fine imposed by Justice Mark Moshinsky last year. It will also have to pick up the costs of the failed appeal.

The failure to overturn justice Moshinsky’s decision opens the bank up to a potential class action from investors who may have suffered losses in the wake of the raising, which was guided by Mr Elliott, ANZ’s then chief financial officer.

Justice Moshinsky agreed with the Australian Securities and Investments Commission that the bank should have told its shareholders that the three investment banks handling the raising - Citi, Deutsche Bank and JPMorgan - had taken up a significant amount of the raising.

ASIC argued that the weak demand for the new stock from the institutional investors ought to have been disclosed because it potentially affected ANZ’s share price and could have been a factor in whether retail investors subscribed for a subsequent $500m share offer.

“Listed entities have an obligation to disclose immediately information concerning the listed entity that is not generally available and that a reasonable person would expect, if generally available, to have a material effect on the price or value of the entity’s securities (subject to certain exceptions),” Justice Lee wrote in the full court’s judgment.

“A reasonable person is taken to expect information to have a material effect on the price or value of securities where the information would or would be likely to influence persons who commonly invest in securities in deciding whether to acquire or dispose of those securities.”

ANZ argued in its appeal that the shortfall did not affect its shares of the value of the bank.

However, that was given short shrift by the appeal judges.

“ANZ’s argument over-complicates the statutory regime and does not withstand close analysis,” Justice Lee wrote.

“The contention the materiality test requires the information to have an established economic value effect is a gloss.

“There (is) no necessity to prove that a change in the price of securities occurred to establish liability.”

The Federal Court heard last year that ANZ relied on assurances from Citi, JP Morgan and Deutsche they would not quickly sell the shares they picked up through their underwriting obligations, thereby pressuring the bank’s share price.

Justice Lee said this showed that the shortfall should have been disclosed to shareholders.

“It is worth remarking that the mere fact that assurances were sought by senior officers of ANZ demonstrates that there was a real and abiding concern for reassurance,” he said.