GLOBAL - Pension funds are making the first claims for damages against Hypo Real Estate (HRE) for failing to reveal its financial difficulties sooner.
Rotter Rechtsanwaelte, a German law firm, has filed the first cases against HRE on behalf of private and institutional investors, including Austrian pension funds.
Meanwhile, Winheller Rechtsanwalte, an international law firm, is currently advising around 40 clients, some of which include UK pension funds.
Martin Sach, attorney at Winheller Rechtsanwalte, said: "At the moment, we are representing a large number of private investors, especially shareholders and certificates based on the HRE shares. Also, requests of several institutional investors (foremost asset managers) are available to us. One request refers to claims of several English pension funds."
Investors are making claims against HRE's board of directors for giving false and/or incomplete statements regarding the firm's true state of economic affairs on 7 November 2007, 15 January 2008 and 30 June 2008.
Felix Weigend, partner at Rotter Rechtsanwaelte, said: "They are claiming the losses they realised. That is, the price of the shares of HRE were too expensive, because the company withheld information it should have given to the market confirming the real portfolio and the high risk investment in the Irish DEPFA."
The acquisition of Deutsche Pfandbriefbank (DEPFA), the Dublin-based bank that specialises in financing government projects, by HRE in October 2007 incurred costs of approximately €5bn.
DEPFA experienced financial problems after securing long-term loans against short-term and medium-term bonds, which became so expensive that interest payable by the bank exceeded the interest earned since mid-2007.
HRE's board of directors failed to make this public at the time of the DEPFA takeover in October 2007.
It was not until 29 September 2008 that HRE revealed that DEPFA Bank was facing an imminent liquidity crisis and consequently the entire HRE Group was under threat of insolvency.
Weigend said 50-70 institutional and private investors have made claims against HRE and warned it could take up to five years for the claims to be settled.
The district attorney's office in Munich and the German Federal Financial Supervisory Authority (BaFin) are currently investigating whether former members of the HRE board of directors misinterpreted the company's finances and whether they can be sentenced for illegal insider trading.
"The results of the investigation by the authorities will help the harmed investors and will make the process of asserting damages in court considerably easier," said Sach.
According to Sach, shareholders can demand reimbursement of the difference between the price that they paid for the shares and the price they would have had to pay if the true financial situation of HRE had been known.