FNZ Faces $4.5 Billion Lawsuit as Employee-Shareholders Revolt

In what promises to be a landmark corporate governance case that could rewrite the rulebook on share dilution practices, hundreds of FNZ employees are gearing up for a legal showdown headed by New Zealand law firm Meredith Connell against their employer.

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The wealth technology behemoth, which counts major financial institutions like National Australia Bank and Colonial First State among its clientele, is facing a potentially explosive class action from its own staff-shareholders according to a report in the Australian Financial Review.

The Dilution Solution That Became a Legal Pollution

More than 300 FNZ employees who doubled as long-term shareholders have engaged New Zealand law firm Meredith Connell to prepare their legal assault on the company’s recent capital raising practices. 

These employee-shareholders, spread across the United Kingdom, Australia, New Zealand, and Asia, allege that a series of capital raises conducted over the past 18 months have diluted their shareholdings by a staggering US$4.5 billion.

The root of the dispute lies in FNZ’s preference share structure implemented across three recent fundraising rounds. Last year, the company raised US$1 billion through two rounds of preference share issuance to institutional investors, followed by an additional US$500 million raise earlier this month using a similar structure. 

The catch is that these preference shares ranked higher than employee-held shares, effectively transforming what many staff expected to be their golden nest eggs into something closer to chicken feed.

The Corporate Dilution Playbook

The preference share arrangement guaranteed institutional investors returns of up to two to three times over a two-year period. Employee-shareholders claim this structure was designed to benefit major institutional backers-including former US Vice President Al Gore’s Generation Investment Management and Canadian pension fund Caisse de Depot et Placement du Quebec-at their expense.

“It’s like being invited to a potluck dinner where you bring the main course, but then finding yourself relegated to eating scraps while the late arrivals feast on your contribution,” one might say of the situation facing these employees.

A Kiwi Success Story Facing an Employee Insurrection

Founded in Wellington in 2003, FNZ has grown into a global fintech powerhouse managing approximately US$1.7 trillion in assets24. 

While its headquarters now reside in London, the company remains domiciled in New Zealand-a detail that proves critically important to this legal battle.

The employee-shareholders’ claim rests on alleged violations of New Zealand’s Companies Act, specifically provisions against conduct deemed “oppressive, unfairly discriminatory, or unfairly prejudicial” to shareholders. If successful, this could become one of the largest class actions ever to span both New Zealand and Australian jurisdictions.

The Toxic Aftermath

What began as employee discontent has escalated into a full-blown corporate crisis. Despite earlier protests from 215 employee-shareholders who co-signed a letter criticizing the initial capital raises, FNZ proceeded with its third capital raise on similar terms. 

The company has reportedly twice delayed promised “catch-up notices” to employee shareholders, further eroding trust between management and staff.

“The relationship between the new management and key long-serving staff has broken down, and it’s getting worse every day this goes on,” one FNZ employee told BusinessDesk. Another added, “If it goes to court, it is in nobody’s interests and would be a long drawn-out process which would be terminal for the company.”

Precedent-Setting Corporate Governance Battle

For corporate lawyers, this case highlights the delicate balance between raising capital for growth and maintaining fairness to all shareholder classes4. The dispute raises fundamental questions about director duties when conflicts of interest arise between different investor groups.

“We cannot stand by and allow what we consider to be an unjust wealth transfer from us ordinary employees who built FNZ to institutional investors, including some of the world’s largest sovereign wealth funds and private equity firms,” the staff-shareholders said in a statement.

This case could establish important precedents regarding how boards must navigate competing interests when some directors represent specific shareholder groups. With employee-shareholders constituting approximately 35% of FNZ’s ownership, their collective action carries significant weight.

The legal battle is expected to commence within weeks, with hundreds more FNZ employees potentially joining the class action. For now, FNZ management remains tight-lipped, declining to comment on the brewing storm.