Danske's Bid to Stop U.S. Class Action Lawsuit Hits Obstacle

(Bloomberg) -- A U.S. class action lawsuit against the Danish bank at the center of Europe’s biggest money laundering scandal is set to continue after a court denied as moot a request to dismiss the case.

Danske Bank A/S must respond to an amended investor complaint by mid-September, according to an Aug. 7 order by the U.S. District Court for the Southern District of New York. The bank may either answer the revised complaint or file an “appropriate motion,” the order said. That could include renewing its motion to dismiss.

Investors in American depositary receipts of Danske, which is the target of criminal investigations in the U.S. and across Europe, want compensation for a share-price slump that was precipitated by the laundering scandal. They allege that Danske repeatedly failed to respond to signs that criminals from Russia and other former Soviet states were using the bank to funnel money into the West.

Shares in the bank have slumped about 25% this year after sinking 47% in 2018.

U.S. investors are demanding a jury trial. In an amended complaint filed earlier this week that targets Danske, the head of its wealth unit and several former executives and board members, the investors allege that the bank ignored clear signs of laundering and that it misrepresented risks to the public.

Danske Faces Another Investor Lawsuit Filed in Copenhagen; Read More Here

Danske has admitted its anti-money laundering defenses failed miserably, and said last year that a large part of 200 billion euros ($222 billion) that flowed through its Estonian office between 2007 and 2015 should be treated as suspicious. The bank has replaced board members and key executives, including former Chief Executive Officer Thomas Borgen.

Elliott Stein, senior litigation analyst at Bloomberg Intelligence in New York, says that “Danske may still be able to beat this amended suit on a renewed motion to dismiss. The bank still has strong arguments that its allegedly false statements constitute inactionable puffery or corporate mismanagement, and weren’t intentionally fraudulent.”

Stein also notes that it’s a close call, and that “if the suit survives, we think the settlement value is as much as $500 million.”

Analysts at Berenberg cut their target for Danske’s share price by roughly 40% late, to 115 kroner a share, on Thursday, citing the threat of continuing investigations into the bank. Danske fell 1.8% on Copenhagen trading on Friday, to about 95 kroner.

The new management team is spending considerably more time and money on monitoring transactions and customers, as part of a revamped compliance model. The new CEO, Chris Vogelzang, has said restoring trust in Denmark’s biggest bank is his main priority.

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In June, Danske had tried to get the case dismissed, arguing that the failures of anti-money laundering defenses didn’t constitute fraud and instead were “deficiencies” that “are being addressed in the appropriate fora.”

Danske lawyers also argued the U.S. court doesn’t have jurisdiction on claims before Jan. 28, 2016, when bank-sponsored ADRs began trading. The class action covers investors who bought ADRs from Jan. 9, 2014, through April 29, 2019.

In the Aug. 7 ruling, District Court Judge Valerie Caproni noted the U.S. investors’ amended complaint, which included new arguments that there’s no evidence Danske objected to the un-sponsored ADRs, and rejected as moot Danske’s motion to dismiss. Caproni ordered Danske to respond no later than Sept. 13 to the revised complaint.

--With assistance from Heather Smith and Lisa Pham.

To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net

To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net

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