Bankia’s legal case has been a scandal which has affected the credibility of the institutions, governance of the public and most importantly of the Spaniard’s patrimony
The Supreme Court has just taken a historic decision that closes –by applying stitches that will leave a noticeable scar - the most serious wound of contemporary capitalism in Spain. More than 350,000 shareholders, individual and institutional, bought shares when BANKIA went public. That train derailed, the bank was rescued a few months later, and the investment of those who believed in the project went downhill. Since then a veritable flood of financial litigation began to flood the Spanish courts, including the High Court.
The Bankia case has been a scandal that has affected the credibility of institutions, governance of the public, and most importantly the Spaniard’s patrimony. Of those who bought shares and all others who, as taxpayers through the state, had to pay a heavy bailout of the financial institution. Since then, Goirigolzarri and his team have done nothing but fight, with outstanding professionalism- to create value for existing shareholders, which meant opposing the claims of the shareholders who participated in that sultry IPO and wanted to recoup their investment. This is the dispute that has settled the Supreme Court in a courageous and admirable manner.
As of today, the law - which is what the judges state, and particularly the Supreme Court-, it is clear that the shareholders, whether they sold their shares as those who still hold them, may recover all of their investment plus legal interest, plus the costs of the proceedings. That right is not conditional on the huge legal saga that handles expertly Judge Andreu –and it doesn’t depend on the prosecution of the criminal trail. Shareholders will have to go to court , which to date had proved them right in 95 % of cases. Now it will be 100% certainty. All of those who file a claim shall win.
The Supreme thus has created an opportunity for more than 270,000 shareholders who have not yet filed a claim to recover their entire investment. Although it is a single verdict, which therefore has no value by itself as jurisprudence, it can be taken for granted, given that the ground of appeal was the appellate interest, that this judgment will set the standard to follow in the various processes in the lower courts.
Indeed, in accordance with the reports we have at this time, and subject to a rigorous study of the verdict, once the full text is available, it can be assured that all purchasers of shares of Bankia on its IPO, who want to recover their investment, they may sue with full guarantee of the success of the refund. The verdict thus confirms the approach of this firm in the many appeals it has filed, and this could be the decisive incentive for those who have not yet decided to sue to sue before losing the opportunity to do so during the period for the annulment action of the contracts which in principle would be in May.
Indeed, the thesis of the Supreme Court confirms the legal strategy that many of us lawyers have followed to defend the minority shareholders of Bankia and, from the capitalism, which needs to repair wherever an injustice is committed. It is important to emphasize the role played by the Spanish Association of Minority Shareholders of Listed Companies (AEMEC per its acronym in Spanish), which has provided thousands of shareholders with information and advice, in their equity loss suffered as a consequence of the inability of prevention from regulators and supervisors, who were there solely to protect them.
The Supreme supports the assertion that the IPO of Bankia was in detriment to its shareholders. The verdict confirms that Bankia, already had in December 2010, had a rundown balance sheet and accounting statement and, not withstanding the above ventured to go public through a massive advertising campaign and attracting minority shareholders, which ultimately would cover this situation. Moreover, the Supreme notes that the financial information contained in the prospectus of the IPO-information which is considered as an essential part of the system in the primary-market included a series of data that did not reflect the true and fair image of its assets, breaching Bankia its duty of providing truthful information, in accordance with the provisions of Article 135 of the Securities Market Law, and nonetheless such data was decisive for many people to acquire the securities of Bankia, and afterwards saw their investment vanish. In my opinion the Supreme Court has done right by choosing to apply this specific pathway in the securities markets, in accordance with isolated verdicts that were making headway in first instance (most notably that of 8 May 2015, in Fuenlabrada), and of various provincial courts.
Ultimately the Supreme Court is consistent with the reality: the financial markets are mainly information markets. When investing, shares are an underlying value. What is really being handled in the market is information. When someone buys a property he inspects it, but when someone buy shares of a company in markets, he doesn’t verify the existence of agreements nor does he visit production plants, if any, which are on what businesses are based are from what they receive their benefits, but they rather rely on the information that each company is required to give of itself.
The Supreme Court is also brave to refuse that open criminal case paralyzes civil procedures, understanding that not allowing to undergo civil procedures until there is a verdict in a criminal case is a restrictive interpretation in the current Code of Civil Procedure, that the civil fraud is diverse to the criminally enforceable one and that the suspension of proceedings as a consequence of the aforementioned would only further condemn the injured parties to wait for a final criminal judgment, which today is unpredictable , given that instruction phase is still underway.
The limitation period to take legal action in civil proceedings has not ended, and various dates should be taken into account in order to calculate the deadline: the moment when Bankia revised its accounts, the moment of the reverse split, the delisting of the entity or, in the best scenarios for investors, the publication of the report of the experts of the Bank of Spain. In my opinion, at least there is no deadline until May of this year. Therefore it is to be expected, that in the coming months we will see a flood of lawsuits against Bankia, also institutional investors and high net worth which so far were mostly huddled waiting for a moment like this of legal security - whose team of directors and shareholders - among those whom at the end of the day is the taxpayer- have suffered today a big setback. But as it is said in the classics, justice is nothing but only giving each person what is his own.
It is a pity that our legal system does not provide a similar mechanism to that in other countries where the factual and legal is still evident, the claim by individuals becomes a simple procedure, in order to avoid undue delays and unnecessary red tape: we are talking about pursuing a class action, which could be configured and adapted to the Spanish legal culture. The European Union will soon force us to adopt a mechanism for collective dispute resolution which will better alleviate the evils and the operation of our justice system and bring its service to the citizens. Meanwhile, the Supreme Court has done what it could and what it should: leave an expeditious way for everyone with the confidence that the courts will be solving one by one all the lawsuits against Bankia. One by one, and in the same direction.
International Financial Litigation Network
Jorge Juan 30, 6 Floor.
Madrid, Sp, 28001, Spain
Tel: (+34) 91 426 40 50
Fax: (+34) 91 426 40 52