AM class action gets all clear
AMCorporation, its LifeTrack Diversified Traded Policies (DTP) Fund, group founder David Smith and director Alan Rich will be formally issued with legal writs in December following a decision by litigation funding firm IMF (Australia) to bankroll a case against all parties on behalf of some 400 superannuants in relation to $20 million in lost investments.
The dispute, which relates to losses incurred by investors in AM’s LifeTrack traded policies fund, was reported inMoney Managementin August, however, the process of bringing formal proceedings against the group was a laborious one as IMF sought sufficient numbers of affected AM clients to warrant legal action.
“We’ve now got about 400 people who want to take action at the moment and I expect that to double by the time the proceedings get underway,” IMF managing director Hugh McLernon says.
IMF has also brought in Melbourne-based legal firm, Morris Blackburn Cashman, to replaceEbsworth and Ebsworth, which had to pull out due to a conflict of interest arising because it had previously represented AM’s insurer.
McLernon will meet with his lawyers this week in order to finalise a statement of claim, which he says will then be issued to the relevant parties before Christmas.
Despite having sufficient investor numbers on board, McLernon says the facts of the case were also a strong influence in the group agreeing to take on the matter.
“The facts speak for themselves. The biggest problem they [AM] had was that they were so over-geared and they had purchased so many policies that they were simply illiquid, and because there was no secondary market they had to surrender the policies back to the insurance company. As soon as you do that, you’re going to lose 10 to 15 per cent of your capital,” he says.
AM Corporation was acquired byIOOFback in February.
While the purchase price was not disclosed at the time, according to IOOF’s recent share offer prospectus, it still has to pay $17.5 million in deferred payments for its purchase of AM Corporation, ahead of a payment of $12.6 million in September 2004 and a further $5 million in March 2005.
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