Greystones & District Credit Union in Co Wicklow has brought a legal action against Bloxham stockbrokers after losing some €1.25 million as a result of allegedly negligent advice to invest in two bonds which later plummeted in value.
Bloxham's is already being sued by the Solicitors Mutual Defence Fund and two solicitors for more than €10 million in relation to the same bonds.
The proceedings by the credit union against some nine individuals and FBD Securities Ltd, said to be practising as Bloxham, were admitted to the Commercial Court today by Mr Justice Peter Kelly and adjourned to May next for further directions.
The credit union is alleging negligence, breach of contract and breach of warranty in relation to alleged advice given by Bloxham's between October 2003 and March 2005, and particularly in 2005, relating to investment of sums of €1 million and €250,000 in Saturns Investments Europe plc investment bonds referred to as the "Dresden bond" and the "HSBC bond".
In an affidavit, Brian Douglas, manager of Greystones credit union, said that, having invested those sums on the advice of Bloxham's, the credit union discovered the investments were not authorised by the Trustee (Authorised Investments) Orders of 1998. He said they would not have invested the €1.25 million sum had it been advised of the complex and high risk nature of the bonds and had lost the capital sum, with no prospect of recovering it.
The credit union's proceedings come after the Solicitors Mutual Defence Fund, the main insurance body for solicitors, brought proceedings in December against Bloxham's over alleged negligent advice given in 2005 relating to the same bond,
alleging its ability to indemnify solicitors had been affected by more than €8 million losses suffered after the bond's value fell.
Some of the Bloxham defendants are seeking indemnity on grounds they were not partners at the time of the alleged negligent advice in 2005.
In the SMDU case, Mr Justice Kelly has been told Bloxham's is suing Morgan Stanley in the UK alleging breach of contract relating to the bond but that claim is limited to €42.75 for every €100 invested in the bond.
It is claimed Bloxham's in early 2005 expressly represented the bond was a suitable investment issued by Dresdner Bank but it later emerged the bond was not issued by Dresdner and was not suitable.
It is alleged a 'call option' exercisable by Morgan Stanley compromised the integrity of the bond as a secure investment vehicle. A "mandatory redemption event" exercised by Morgan Stanley had the net result the bond holders would only recover 3 per cent of their investment, it is also alleged.