Lawyers, funds and money

ING's offer of settlement to disgruntled investors in the now-infamous 'frozen funds' is still generating controversy despite the fact that almost 95 per cent of unitholders accepted the terms. Specifically, some are arguing - including the former Commerce Minister, Lianne Dalziel - that ING should withdraw its requirement for investors accepting the deal to waive any right to future legal action.

But Dalziel and co are conveniently forgetting that those investors were not compelled to sign the agreement. Any investors who truly felt they were mis-sold the ING funds, and could prove it or wanted to hang on until the Commerce Commission investigation is complete, were free to fight their case through the courts. Investors who bought the dud CDO funds through the ANZ bank do also have another week or so to seek further recourse through the Banking Ombudsman, and if they haven't lodged a case yet they should.

As Philip Macalister - publisher of Good Returns and ASSET, the magazine I edit - argued in a recent blog, there's more than a hint of hypocrisy in the politicians plea on behalf of ING investors.

I believe that many people were mis-sold the ING CDO funds but this really has to be proved on a case-by-case basis.

Legal action is, of course, expensive and the odds are probably stacked against investors. In his Herald column this week, Brian Gaynor, charted an interesting development in New Zealand with the launch of a new private litigation funding company (it's not the only one as this Lawlink article reveals).

"There are a number of recent circumstances, including Hanover, Bridgecorp, Blue Chip, the ING income funds, Vestar, Feltex and Tranz Rail, where litigation funding would have been welcomed by investors," Gaynor says.

And he's right. Although in the ING case the end result would probably have been much the same, given that litigation funders will skim off between 20-40 per cent of any successful settlement. The real purpose of litigation funders is to help the wealthy fight each other and generate enormous fees for lawyers.

I reckon most ING investors would not class themselves as wealthy. Even making conservative assumptions - say the two CDO funds at their peak totaled about $850 million spread amongst 14,000 investors, that's an average investment of $60,000. I don't know the true figures but I expect the majority of punters actually had less money than this invested with the ING funds.

For investors with relatively small lumps of money at stake a better solution than the lawyer-heavy litigation funds would be a low-cost complaints body. Particularly if the issue is one of mis-selling, an industry funded body such as the Financial Ombudsman Service (FOS) in Australia, that covered all consumers of investment products (not just bank customers as is currently the case) is the way to go.

Oh that's right, there's one on the way, but it really should have been here decades ago.

- David Chaplin