- A first of its kind class action suit against department store Myer, that kicked off from a verbal remark in 2014, has come to a close today
- A plaintiff team representing shareholders in the company were seeking grievances due to ex-CEO Bernie Brookes claiming the 2015 financial year would see profit growth
- Instead, the company weathered lowered profits, which eventually saw its share price drop from $1.64 in October of 2014 to today’s price of 57 cents
- Federal Court Justice Jonathan Beach ruled that even though the remark was technically misleading, sceptics at the time would have out-ruled the inflated goals of the CEO — with shareholders seeing no victory
- At market open today, shares in Myer dropped 1.72 per cent to trade for 57 cents per share with the company eventually entering a trading halt
The Federal Court has ruled down on a decision towards department store Myer, after its share crash sent shareholders launching a class action.
In September 2014, then-CEO Bernie Brookes made a verbal remark saying he “anticipated profit growth” for the company going into the 2015 financial year. Bernie would later resign after nine years at the job.
Years later, Myer’s share price dropped from $1.64 in October of 2014, to today’s price of 57 cents.
Today, a federal judge handed down a final decision on the aggrieved shareholders issue against being misled, but the outcome isn’t so bad for Myer after all.
Federal Court Justice Jonathan Beach said although Myer technically misled shareholders, knowledge from sceptic analysts would have offset the inflated outlook regardless.
A landmark case
Today’s events mark the first time a shareholder class action made its way to court instead of reaching settlement.
“The hard-edged scepticism of market analysts and market makers at the time of the contraventions had already deflated [Bernie Brookes’] inflated views,” Justice Jonathan said.
“So, any required corrective statement that should have been made at the time of the contraventions, if it had been made, is likely to have had no or no material effect on the market price of [Myer] securities.”
Federal Judge Jonathan also commented that Bernie’s misguided inflation is just the result of ignorant forecasts, rather than intrepid wishings.
“I was also left surprised about their professed ignorance concerning some of the draft forecasts and the like that were prepared at and after that time,” he said.
“Further, in relation to Mr Brookes’ evidence concerning his understanding as to the board’s position at the board meeting on 10 September 2014, his understanding was in tension with the understanding of other directors.”
Bernie and his colleague, former Myer CFO Mark Ashby, were saved in the clear as honest leaders, due to a timeline of events.
Reportedly, the pair testified that executive discussions had taken place about falling sales before the profit downgrade was officially announced.
The court heard in December 2018 that Myer prepared two different profit forecasts for the 2015 financial year. One report apparently stayed faithful to the full-profit $101 million outlook, while the other warned for a lower $90 million.
Bernie claimed he had not seen those forecasts and commented that the reports would be incomplete regardless.
In March 2015, the company’s profit guidance was downgraded to hit between $75 million to $80 million. This profit cut sent a shockwave 31 per cent share price degradation from $1.89 to $1.30.
In September 2015, full-year net profit ended up falling 21.3 per cent to $77.5 million and shares continued to drop to 83 cents.
The landmark case which eventually came to a close today saw the plaintiff team funded by Australian Funding Partners — run by Mark Elliot.
Mark actually attempted to sue Myer as lead plaintiff, litigation funder and lawyer originally, but was thrown out due to an abuse of process.
Mark’s class action was joined by 1500 shareholders and could have seen as many as 2500 eligible to join.
The class action case was built upon the fact that Myer’s forecast would have gone against long running trends of profits, making the remark by Bernie Brookes unreasonable.
At market open today, shares in Myer dropped 1.72 per cent to trade for 57 cents per share. Not long after open, the company entered a trading halt.