Investors in Lithuania scored an overwhelming victory in a lawsuit filed against DNB bankas
On 22 May 2013 Panevėžys Regional Court delivered an exceptional judgement which can affect the whole banking system offering investment services to non-professional investors. The court recognized the validity of all the claims put forward by the claimants to DNB bankas as related to the damage caused by the recommendations on investing provided in inappropriate and unprofessional manner, under the conditions implying a conflict of interest.
This is one of the largest cases of such kind in Lithuania, both in terms of the claims (over 11 million LTL, or 3.2 million EUR) and the number of claimants who joined each other to form a common group (a group of 15 investors).
According to the data available to “Baltic Legal Solutions Lietuva”, pan-Baltic law firm, a number of investors who were negatively affected by the product distributed by DNB bankas can reach as high as several hundreds. Therefore, such a court judgement, by which the financial product, the risks associated with it and the duties, as well as responsibilities of DNB bankas in this context were thoroughly assessed, gives a green light to other affected investors willing to actually defend their infringed rights in the court.
The court held that DNB bankas (the Defendant) had violated the norms of legal acts regulating markets in financial instruments, which stipulate specific and strict duties for a credit institution providing investment services to non-professional investors.
As for this case, it must be noted that the bank is a professional participant in the financial market, i.e. it is a special subject facing, according to the established court practice, very high business and responsibility standards. Meanwhile, non-professional investors, whom the Claimants appeared to be in the present case, in fact, had no or little knowledge of the investment products offered by the bank and the risks associated with them, etc. Due to these reasons, the Claimants had no grounds to not trust the bank and the information it provided, therefore such complex decisions on investing into index-linked bonds, by using the funds borrowed from this bank, were made by them as they followed and relied on the recommendations provided by the bank employees. Therefore, trust (fiduciary) relationship was formed between the bank and the clients (investors), which stipulated the duty of the bank to serve the exceptional interests of the client and act under the conditions best for the client. The court stated that DNB bankas had not been acting fairly and under the conditions best for the client, thus violating the requirements set forth in the Law on Market in Financial Instruments, the MiFID Directive (Markets in Financial Instruments Directive), as well as other legal acts.
The judgement of the court, which still can be further appealed according to the procedure established by legal acts, determined a very important aspect that the systemic risk of the transactions initiated (bond subscription agreements, loan and real estate mortgage contracts), i.e. the investment strategy proposed, had never been revealed, and the subject matter as well as the essence of interdependent transactions had never been disclosed. The information, if any provided, had been rather fragmentary. In fact, this confirmed that non-professional investors may take the risk for their anticipations related to the market changes only in case these anticipations are not based on the misleading information provided by DNB bankas. The court also performed a thorough assessment of the bank's marketing material that presented the complex and risky financial product as a safe and, in fact, profitable one in all senses.
The court paid attention to the fact that by distributing the product of index-linked bonds, DNB bankas had been acting under the conditions implying a conflict of interests, since it had benefited from the transactions by receiving interest. Besides, the bank had been using, in its commercial activities, the funds which were to be provided to the claimants according to the loan agreements, but were never actually paid to them. Besides, it was not only the bank, but also its employees who had been interested in initiating such transactions. Therefore, it could also have influenced the objectivity of the recommendations provided by DNB bankas.
Thus, in this case the court made a clear statement that the damage inflicted on the investors had been caused by DNB bankas improperly performing its duties, due to which the claimants (investors) had not realised the entire scope of risk and had suffered actual damage.
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