Lesson learn - never challenge the authorities
Suit against DBS over High Notes 5 dismissed
By Francis Chan, Companies Correspondent
DBS Bank has scored a victory over 215 investors who mounted a collective action lawsuit against the bank in a bid to recover up to $18 million poured into a now worthless product, DBS High Notes 5.
The group had sued DBS Bank in July last year after they lost all their money invested in the complex structured product linked to failed United States investment bank Lehman Brothers.
The credit-linked note went down like a house of cards two years ago after Lehman filed for bankruptcy protection on Sept 15 that year, triggering the global financial crisis.
Lehman's collapse set off what DBS referred to as a credit event, which wiped out all value from DBS High Notes 5.
The investors who sued the bank had argued that because of inconsistencies in the product's base prospectus and pricing statement, the credit-linked notes' contract should have been declared void and their millions of dollars refunded.
The alleged inconsistencies relate to four formulae indicated by DBS in those documents, given to investors as part of the sales process. The formulae were used to calculate the credit event redemption amount (Cera), which ultimately determines how much an investor gets back when a credit event occurs.
However, High Court Judge Lee Seiu Kin disagreed with the investors and dismissed their claim in a written judgment delivered last Friday.
According to court documents seen by The Straits Times yesterday, Justice Lee agreed with DBS that the first three formulae given by Singapore's largest bank were 'entirely consistent'.
This, he said, was because they had clearly conveyed that the Cera was among other things, 'directly related to the market value' of the defaulting entity - in this case, Lehman.
Justice Lee also accepted the bank's explanation that the fourth formula provided was 'an obvious clerical mistake'.
Investors involved in the case told The Straits Times yesterday that they have not been formally informed of the ruling and are consulting their lawyer, Mr Siraj Omar of Premier Law.
But a source close to the case said the investors are likely to appeal against the High Court's decision.
DBS High Notes 5 were sold to more than 1,400 retail investors, including elderly bank customers, after it was launched in March 2007. Together, these investors bought about $103 million worth of the notes, with more than half of them investing $50,000 or less.
Among them, about 200 investors in DBS High Notes 5 who lodged complaints with the bank had been offered partial or full settlements by DBS. It was not confirmed if any of the investors involved in the lawsuit were among them.
Latest figures show that about 9,900 people here lost a total of about $520 million invested in Lehman-linked products. These included DBS High Notes 5, Minibonds, various series of Morgan Stanley Pinnacle Notes and Merrill Lynch Jubilee Series 3 LinkEarner Notes.
The Monetary Authority of Singapore (MAS) probed the matter and found that financial institutions here had failed in a number of areas, including labelling structured products with a lower risk rating than warranted.
All 10 institutions were given bans ranging from a minimum of six months to a maximum of two years, preventing them from selling such structured products until they met tougher MAS requirements on sales and marketing processes.
Suit against DBS over High Notes 5 dismissed
By Francis Chan, Companies Correspondent
DBS Bank has scored a victory over 215 investors who mounted a collective action lawsuit against the bank in a bid to recover up to $18 million poured into a now worthless product, DBS High Notes 5.
The group had sued DBS Bank in July last year after they lost all their money invested in the complex structured product linked to failed United States investment bank Lehman Brothers.
The credit-linked note went down like a house of cards two years ago after Lehman filed for bankruptcy protection on Sept 15 that year, triggering the global financial crisis.
Lehman's collapse set off what DBS referred to as a credit event, which wiped out all value from DBS High Notes 5.
The investors who sued the bank had argued that because of inconsistencies in the product's base prospectus and pricing statement, the credit-linked notes' contract should have been declared void and their millions of dollars refunded.
The alleged inconsistencies relate to four formulae indicated by DBS in those documents, given to investors as part of the sales process. The formulae were used to calculate the credit event redemption amount (Cera), which ultimately determines how much an investor gets back when a credit event occurs.
However, High Court Judge Lee Seiu Kin disagreed with the investors and dismissed their claim in a written judgment delivered last Friday.
According to court documents seen by The Straits Times yesterday, Justice Lee agreed with DBS that the first three formulae given by Singapore's largest bank were 'entirely consistent'.
This, he said, was because they had clearly conveyed that the Cera was among other things, 'directly related to the market value' of the defaulting entity - in this case, Lehman.
Justice Lee also accepted the bank's explanation that the fourth formula provided was 'an obvious clerical mistake'.
Investors involved in the case told The Straits Times yesterday that they have not been formally informed of the ruling and are consulting their lawyer, Mr Siraj Omar of Premier Law.
But a source close to the case said the investors are likely to appeal against the High Court's decision.
DBS High Notes 5 were sold to more than 1,400 retail investors, including elderly bank customers, after it was launched in March 2007. Together, these investors bought about $103 million worth of the notes, with more than half of them investing $50,000 or less.
Among them, about 200 investors in DBS High Notes 5 who lodged complaints with the bank had been offered partial or full settlements by DBS. It was not confirmed if any of the investors involved in the lawsuit were among them.
Latest figures show that about 9,900 people here lost a total of about $520 million invested in Lehman-linked products. These included DBS High Notes 5, Minibonds, various series of Morgan Stanley Pinnacle Notes and Merrill Lynch Jubilee Series 3 LinkEarner Notes.
The Monetary Authority of Singapore (MAS) probed the matter and found that financial institutions here had failed in a number of areas, including labelling structured products with a lower risk rating than warranted.
All 10 institutions were given bans ranging from a minimum of six months to a maximum of two years, preventing them from selling such structured products until they met tougher MAS requirements on sales and marketing processes.
