Australia’s largest listed wealth manager staring at class action lawsuit

Its Chairwoman and legal counsel have resigned with immediate effect. Analysts expect more heads to roll in the coming weeks.

On Monday, following damaging revelation of inappropriate behavior at AMP, Australia’s largest-listed wealth manager, Catherine Brenner, its chairwoman and Brian Salter, its legal counsel are set to depart with immediate effect. The company also slashed its directors’ fees by a quarter.

Damaging disclosures have been leveled at the firm following a judicial inquiry into AMP’s workings which revealed that it has deceived Australia’s corporate regulator and misled customers. The scandal has also seen the premature exit of CEO Craig Meller, who was scheduled to leave by the end of this year.

Analysts expect more heads to roll.

According to Mike Wilkins, a former independent director who has now been named both interim chairman and CEO, the evidence given to the Royal Commission is “being treated extremely seriously by the board. Appropriate steps are being taken to address the issues raised, and remediating our customers is being given utmost priority”.

The revelations are also likely to ignite a possible class action.

After this scandal came to light nearly $1.7 billion (A$2.2 billion) was wiped off its market capitalization and as of Friday’s closing it was valued at A$11.6 billion.

The enquiry by the Royal Commission was told that advisers at AMP had misappropriated funds from thousands of its clients over the last decade by charging them without providing advice; to make matters worse it had also repeatedly lied to the Australian Securities and Investments Commission (ASIC).

On Friday, counsel assisting the Royal Commission stated, AMP had breached provisions of the Corporations Act that carry criminal sanctions.

Brenner, Salter and Meller were singled out by the inquiry as part of a group of senior executives that allegedly modified a report by Clayton Utz, a law firm, and submitted it to the regulator in late 2017 as “external and independent” with the intention of limiting the report’s findings about the involvement of AMP’s senior executives in misappropriating customer fees.

However AMP has stated that Brenner, Meller and the other directors “did not act inappropriately in relation to the preparation of the Clayton Utz report”. However, its statement did not comment on Salter’s behavior.

AMP has said it would make a formal submission in response to the allegations raised at the commission by May 4.

It further stated, the “employment and remuneration consequences” for individuals who were responsible for charging fraudulent fees will be determined once an external employment review is completed, which is expected shortly.

AMP will now slash its director’s fees by 25% for the rest of 2018 as a recognition of the “collective governance accountability for the issues raised in the Royal Commission and for their impact on the reputation of AMP”.

The firm has already started looking for a new CEO and will fast track the selection process in order to “help ensure stability and further strengthen governance”, said Wilkins.

As per David Ellis, an analyst at Morningstar, its very likely more executives and board members are likely to leave the company in the coming weeks.

“All bets are off,” said Ellis. “With a new CEO and a new board, the future strategy could be completely different.”

Significantly, IMF Bentham Ltd, a litigation financier, has disclosed it plans on funding a class class lawsuit against it.

AMP’s spokeswoman declined to comment on the proposed class action.

The Royal Commission, which is just a couple of months into what is expected to be a year-long investigation, is expected to make wide-ranging recommendations including making proposals for legislative changes and could impose civil or criminal prosecutions against AMP’s executives or board members.

($1 = 1.3201 Australian dollars)

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