Investor Update: ISAF-Danske Litigation October 2020 Client Update
On 27 December 2019, the institutional shareholder-driven coalition represented by the International Securities Associations and Foundations Management Company for Damaged Danske Investors (ISAF-Danske) made its first filing of a lawsuit against Danske Bank in the District Court of Copenhagen. Danske Bank in Estonia was used in connection with one on the largest money laundering schemes in history and suspicious transactions of 1.5 trillion DKK went through the bank. The comprehensive writ alleges that Danske Bank failed to disclose financial misconduct and regulatory risks, as required by the Danish Capital Market Law, international banking rules and treasury regulations. As the truth of the money laundering scandal became known, Danske Bank’s share price declined by more than 58% between September 2017 and May 2019, causing severe harm to investors. The global group of approximately 60 ISAF-Danske participants in the initial writ claimed Danske Bank common stock losses of nearly 1.35 billion DKK.
The writ was filed in Copenhagen City Court pursuant to the rules of procedure. ISAF-Danske then petitioned to have the case transferred to the higher Eastern District Court (High Court). Counsel’s belief is that litigating in the High Court will be more efficient. The High Court has more experience with complex financial matters. Additionally, related shareholder suits against Danske Bank also petitioned for their cases transferred to the High Court. Being in the same court will likely facilitate coordination if necessary. We note that Danske Bank likewise petitioned to have all cases transferred to the High Court.
In June 2020, the Copenhagen City Court denied the transfer petition. The Copenhagen City Court indicated that it had decided to not consolidate related shareholder cases in accord with previous practice. Instead, the Copenhagen City Court accepted the petition of two earlier-filed “test cases” to proceed with on an initial basis. ISAF-Danske has appealed the transfer ruling and expect a decision on this matter within the next few months. If the procedure in the case complex against Danske Bank will be pursued with test cases, ISAF Danske has petitioned the High Court to include at least one claimant of the ISAF-Danske group cases in the initial set of test cases.
Also, in August 2020, Danske Bank provided an 87-page Answer to the ISAF-Danske writ. Counsel continues to evaluate the bank’s defenses. However, a response will not be made until the court forum matter has been resolved.
On 4 September 2020, ISAF-Danske made a supplemental filing of the writ on behalf of additional Danske Bank investors who did not participate in the 2019 initial filing. The second group of approximately 30 participants claimed DKK 355 million in aggregated losses. Between the two filings, the ISAF-Danske coalition seeks compensation for a group of more than 90 Danske Bank investors with about DKK 1.7 billion in total claimed losses.
The second group filing occurred on the eve of what counsel has explained as the statute of limitation beginning to run. Generally, a shareholder lawsuit of this type must be filed within three years of an event that causes the claim to become known. The ISAF-Danske writ established the first material money laundering disclosure event as 5 September 2017. As a result, ISAF-Danske has finalized its group and closed participation for additional investors.
In mid-September 2020, counsel was able to access the previously sealed writs of the test cases. The writs were notably simplistic when compared with the thorough substance of the ISAF-Danske writ. Among other things, the “test case” writs lacked event studies that are included in the ISAF-Danske writ and that evidence precisely how disclosures about the money laundering scandal caused specific price declines directly damaging investors. Accordingly, counsel sent a supplemental letter to the High Court detailing the important differences among the writs that merit our transfer and inclusion in the test cases.
Looking ahead, we are focused on three areas in the immediate future.
I. First, we await the High Court’s decision on transfer and test case inclusion.
II. Second, we continue to monitor for new information related to Danske Bank’s money laundering scandal. Most recently, Danish media outlets reported how Danske Bank helped Deutsche Bank facilitate suspicious trades of nearly DKK 4 billion through its branch in Lithuania between 2012 and 2015. In October 2020, Frankfurt prosecutors fined Deutsche Bank DKK 100 million for the belated reporting of suspicious transactions it processed for Danske Bank’s Estonian branch. While Frankfurt prosecutors dropped the criminal investigation against Deutsche Bank, the authorities found that, between 2010 and 2015, in 627 cases the lender failed to flag potentially suspicious transactions to law enforcement authorities on time. For each of these failures, Deutsche Bank was fined between DKK 100,000 and DKK 250,000 related to its role as a correspondent bank to Danske Bank. Moreover, Danish, Estonian, French and U.S. authorities have ongoing criminal investigations against Danske Bank that could yield additional evidence, and money laundering related fines levied against Danske Bank.
III. Third, we will be in communication with certain participants to help us prepare for discovery. Depending on the initial documentation provided, we will, at a minimum, request supplemental documentation verifying authority or trade records and holding statements.
Please contact us should you have questions about the litigation.