Will class action lawsuit specialists Slater + Gordon face their own lawsuit, shortly?
In an ironic twist of fate if ever there was one, the world’s first publicly listed law firm is potentially facing a class action lawsuit following the financial hits the share price for the firm has taken in recent times.
Slater + Gordon listed on the Australian Stock Exchange in 2007, proclaiming itself to be the world’s first publicly traded law firm with an “outstanding record” in class actions.
Since then it has expanded rapidly in the UK and elsewhere until it hit recent issues with a decline in its price of over 90 percent in the last month.
The share price catastrophe has occurred in part following questions about the firm’s purchase of UK legal services outfit Quindell, with media reports saying that Slater + Gordon were seeking “an emergency capital raising, a scalling back of dividends and a swingeing writedown of goodwill”.
The firm’s share price took a particular beating last week after the firm, which had reiterated its revenue guidance as recently as November 30, 2015, on December 17, 2015 announced that that “there is a significant risk that full year guidance will not be met” as a result of which the firm was withdrawing its guidance.
The company’s shares currently trade at 83 cents a share.
The firm recently changed auditors after acknowledging the need for adjustments to its reported 2013-14 and 2014-15 financial reports. In order to fund its acquisition of Quindell, it raised A$890 million in an April share capital raising, which was priced at $6.38 a share.
The D&O Diary report that Slater + Gordon’s rival, the ACA law firm said it was investigating S+G’s disclosures.
The announcement cites the law firm’s April share offering related to the Quindell acquisition, which the law firm had said at the time would increase earnings per share by more than 30 percent in the first year. The announcement says that between the time of the offering and the law firm’s December 17 announcement, the firm’s “share price fell more than 86.4 percent and wiped almost $2 billion off shareholder value.”
The ACA law firm’s announcement asks for shareholders to register their interest in a proposed class action lawsuit against Slater & Gordon. The announcement also advises that shareholders who register will be “asked to sign a funding agreement and retainer at a later stage should you wish to participate in the action.”
The whole S+G mess has raised issues about whether or not it is a good idea for law firms to be publicly traded.
The US ABA Model Rule of Ethics prevent firms from selling equity shares, although the UK market has embraced deregulation and law firms ‘models’ are continuing to develop and involve outside equity.
At the same time, however, developments in litigation financing have taken these fund-raising efforts away from raising financing for a single case or groups of cases to entire portfolios of cases and even for the law firm’s themselves. Once the litigation financing moves beyond funding cases into funding the firm’s themselves, it may be a very short step for the firms to sell their shares to investors and to the investing public. Those considering these kinds of measures or making these kinds of investments may well want to consider the recent developments at Slater & Gordon.