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Model Action against Hypo Real Estate Holding AG (HRE)
Update from 06/14/2010
WINHELLER Attorneys at Law are representing numerous aggrieved investors in the so called model action against Hypo Real Estate Holding AG (HRE). This case often is ranked as the biggest scandal in the history of German banking. The media are therefore covering the HRE case and commenting on it rather polemically. Our task as lawyers is to plead your interests resolutely, without losing sight of what is essential: the facts of the case and the legal consequences deriving from them. Below please find comprehensive and up to date information as to the HRE case and its further development. Providing you with objective information is very important to us.
News about the HRE case
Model action applications entered into the claims register
Frankfurt a. M., 02/03/2010: Our applications for assessment of breaches of capital market information obligations against Hypo Real Estate Holding AG were entered into the claims register in the Federal Electronic Gazette. Thus, the way for the model action is cleared. The objective of the Model Action is to assess that HRE was obliged to promptly publish the need for depreciating its CDO portfolio, noticed on September 27, 2007 and once more on November 26, 2007, and that failing this obligation entitles aggrieved investors to file claims on indemnification against HRE. Within a period of four months, further suitors may join the action. The model action will be opened if at least ten conform applications were filed within the period mentioned.
Who can still join the model action?
All investors having purchased HRE shares between September 27, 2007, and January 15, 2008, who have filed their suits against HRE by January 15, 2009 (alternatively filed a court order or appealed to an arbitration board), may join the action. However, investors already having filed their suits, are not bound to join the action. As soon as the model action will be opened, all proceedings concerned will automatically be interrupted until the Higher Regional Court will have decided on the open questions. The Higher Regional Court's decision will then be valid as well for those investors who were not participating in the model action.
Please note: The deadline for joining the model action was June 3, 2010, 24:00 hrs. According to the District Court’s 27th Civil Division, no more model action applications will be registered into the claims register since the quorum required to open the model action has already been met by our law firm. However, the District Court will be bound to the result of the model action also in cases in which the investors filed suit in time. Those actions will remain stayed until the closure of the model action.
Background information on the Model Action against HRE
Damages caused by share price loss after ad hoc disclosure from 01/15/2008
When HRE announced in its ad hoc disclosure from January 15, 2010 that it had to charge approximately 390 million EUR off its portfolio to collateralized debt obligations (CDOs), the HRE share's price lost 35%. For the share holders had not expected this. Since then, the share has not recovered, in contrast, it reached levels below 1 EUR during the following twelve months, until it was finally bought out by the Federal Republic of Germany for 1.31 EUR each. This resulted in high damages, especially for those share holders who had bought their shares for prices of more than 30 EUR in the summer or fall of 2007.
HRE takes over DEPFA PLC
Until midyear 2007, HRE, a German banking institute at that time based (located?) in Munich, focused its financial activities on real estate projects in central Europe. On October 2, 2007, the bank merged with the “Deutsche Pfandbriefbank” (DEPFA) PLC. DEPFA operated internationally, mainly in the field of financing state and infrastructure projects. Both companies hoped to take advantage of synergetic effects and to expand their businesses by merging. However, when being taken over by HRE, DEPFA already was in considerable economic difficulties, which can probably be attributed to investments on the US bond market and to its internal processes of risk management.
HRE's US CDO portfolio
In the middle of 2007, HRE and DEPFA PLC were holding so called Collateralized Debt Obligations in the amount of approximately 1.5 billion EUR. CDOs are securities derived from a specified pool of underlying assets, which may consist in further securities, e.g. CDOs again, or in collateralized loans or other claims. One part of the CDOs underlying HRE's securities consisted in mortgage backed loans, i.e. such claims that began to fail from mid 2007 on – especially in case their debtor's credit worthiness was low. Anyway, on August 3, 2007, HRE declared that its CDO portfolio was not related with “subprime”. This is why many share holders did not expect any danger of loss.
Depreciations in fall 2007 already
In our opinion, it is hard to understand why in summer 2007 HRE still stated that its CDOs were not risking any damages, while the bank had to write 25% off its CDO portfolio only four and a half months later. We therefore were of the opinion that HRE could anticipate the imminent losses at an earlier stage and thus would have had to advise the capital market of them. As the action was proceeding, it became obvious that HRE had noticed the need for depreciating its CDOs on September 27, 2007 and once more on November 26, 2007. In consequence, the bank had to depreciate the tranche concerned completely. We believe, that HRE, especially with regard to its very optimistic information in summer 2007, would have been obligated to announce these facts immediately by an ad hoc disclosure. This information should have corrected the wrong notions evoked by HRE's press release from August 3, 2007 – stating that the bank would not be affected by the increasing US subprime crisis.
Compensation of damages due to differences in share prices
The share's price obviously would have developed worse, if the capital market had been informed instantly about the depreciations from fall 2007. Share holders having bought their HRE shares between September 27, 2007 and January 15, 2008, therefore paid too much for their shares. This is why share holders can claim the difference between the price they paid and the price that would have resulted from a proper communication with the capital market, as compensation for their loss. The difference should amount to approximately 35 %, according to the share's slump of January 15, 2008.
Suits filed in January 2009
Based on these arguments, we filed our clients' suits to the Landgericht München I (Munich District Court) on January 15, 2009. At the same time, we applied for providing the model action according to the German Model Action Act (KapMuG). Meanwhile, we sent about 25,000 pages of written pleadings and attachments to the court – not in vain.
The Model Action according to the German Model Action Act (KapMuG)
In Germany there are no class actions corresponding to the US American proceeding. Share holders wishing to be compensated by HRE for their loss therefore had to file their suits for claims individually. At least, the KapMuG allows to bundle several similar cases as to the examination of legal arguments and evidence. In case the share holders succeed in convincing the district court in charge of the fact that the legal offences they state are probable, the court will interrupt their proceedings. The Higher Regional Court (Oberlandesgericht) will then be taking evidence for all damaged share holders at once and will resolve legal questions. Afterwards, the district court will be bound to the superior court's decision. In their individual proceedings, share holders then will only need to prove that they purchased their shares at a certain time, and that they relied on receiving correct and complete information by the issuer.
Who can still file suits for claims against HRE?
Aggrieved investors generally had to file their suits for claims by January 15, 2009. This is due to the fact that, according to “§ 37b Abs. 4 WpHG”, Section 37b Subsection 4 of the Securities Trading Act claims for damages derived from defaulted capital market information will become statute-barred one year after the disclosure of this information. In the case of HRE, this occurred by the bank's ad hoc-disclosure from January 15, 2008. This is why we currently assume that claims have become statute-barred if the suits were not claimed by January 15, 2009. There might be an exception for investors based outside Europe, since ad hoc-disclosures from January 15, 2008 were not conceived there at all or, if so, at a later moment. For those investors, September 29, 2009 should be the relevant date. Another exception may apply to investors having filed a court order or having appealed to an arbitration board. Those investors should contact us since in their cases the statute of limitation may have been suspended.
Investors intending to file suit should contact us in time. Please contact Atty. Martin Sach by e-mail (info@winheller.com), by phone ( +49 69 – 76 75 77 80) or by completing the contact form you will find below. We are looking forward to your request.
Email to Atty. Sach
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