Telstra faces massive class action

Stuart Corner
Monday, 23 January 2006 08:17

IT Policy - Regulation

Law firm Slater & Gordon has launched a class action against Telstra on behalf of shareholders alleging that the company failed to fully inform the Australian Stock Exchange about its true financial position.

It claims that the action could include "thousands of shareholders" and that if it proves successful, Telstra would be required to compensate them to the tune of "hundreds of million" of dollars.

The law firm alleges that, on August 11, 2005 Telstra executives gave a private briefing to senior Federal ministers forecasting a drop in future earnings and revealing a $3 billion underspend on operating and capital expenditure in the previous three to five years. It further alleges that this information was not revealed to the market, in breach of the ASX Listing Rules and the Corporations Act, until September 7 when Telstra released a copy of the government briefing to the ASX.

"In this four-week period alone more than one billion Telstra shares were traded with early estimates suggesting investors paid approximately $300 million over the true market value," the law firm claims.

Telstra has rejected the allegations saying: "The corporate regulator, ASIC, investigated Telstra's compliance with its disclosure obligations and announced on 14 December 2005 that it would take no further action. Telstra is surprised to see a law firm display interest in its disclosures over the same period already examined by ASIC."

ASIC said it had found "a set of practices which cannot be regarded as acceptable for a corporation of the size and significance of Telstra to the Australian market," but which "fell short of being appropriate for court proceedings".

Joanne Rees from Slater & Gordon said investors who had contacted the firm were angry that Telstra had given information to the Government but hadn't released it to the market. "The law is very clear, these details should have been released as soon as Telstra became aware of them...How long before August they actually knew about the changes in market disclosed information we are yet to discover. Had Telstra disclosed this information immediately it is likely the share price would have fallen significantly.

"Investors are now claiming compensation for the difference between the price they paid and the value of the shares if the market had known all financial details."

The action covers the period between Telstra first knowing of the changes to its financial circumstances, which is yet to be discovered, and September 7, 2005 when details were released publicly for the first time.

The action will be heard by way of representative proceedings, which means that it will include all shareholders who purchased shares in the relevant period unless they specifically choose to opt out of the case.