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State, Bank of Portugal sued by BES investors for 'gross negligence'.

Summary: The Bank of Portugal and its governor, Carlos Costa, as well as the Portuguese state are the targets of a civil suit for alleged "gross negligence", lodged by 485 small Banco EspE[degrees]rito Santo shareholders, who are demanding compensation for losses they suffered from the bank's collapse. In all, the shareholders taking part own 22,789,387 BES shares and bonds.

The suit, which has been lodged at the Lisbon administrative tribunal, alleges "grave failings in supervision" that it says led to the "progressive financial deterioration and lack of liquidity" at BES. These failings and the public statements by the Bank of Portugal and its governor, it argues, are the "direct cause of the losses" suffered by the investors.

The plaintiffs claim that their interests were damaged by the "abrupt resolution measure" that involved the breaking up of BES and the transfer of its assets to a new entity, Novo Banco, a move the suit describes as "illegal" and "null".

This, it states, represented a "veritable confiscation" of their investment in the shares, by decimating their value, "with the aggravating factor that the Bank of Portugal and its governor, in the days that preceded ... the resolution measure, issued a series of communiques, clarifications, notes and statements to the media, guaranteeing that BES's situation was one of perfect solvency [and that it had] a 'safety cushion' that could accommodation all the more serious scenarios."

The public statements, the suit argues, prompted many shareholders and the public in general to buy shares, or not to sell them, although the governor at the time "knew perfectly well" that he was preparing the resolution measure that was enacted on 3 August.

The suit also argues that Costa was negligent in not previously informing the securities markets authority, the CMVM, which therefore did not suspend the shares from trading, thus allowing major investors "probably using privileged information" to sell their shares in time

On 1 August, the suit notes, BES announced that Goldman Sachs had on 23 July sold 4,445,180 shares, reducing its stake to just 1.25%.

That followed the announcement by BES in early July that it had suffered billions of euros in first-half losses.

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Publication:UMCI News (Potomac Falls, VA)
Date:Jan 29, 2015
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