AIOFP pursues Basis legal action

Four major research houses may yet face legal action over investment grade ratings given to two Basis Capital funds that were frozen earlier this year.

The Association of Independently Owned Financial Planners (AIOFP) is to appoint a Queen’s Counsel to advise it on whether to proceed with a class action against van Eyk, Lonsec, Morningstar and Standard & Poor’s.

Basis Capital’s Basis Yield Alpha Fund was placed into provisional liquidation in September, while another fund has remained frozen since the middle of this year, following the global credit crunch in mid-2007.

AIOFP chief executive Peter Johnston said the decision to appoint a Queen’s Counsel had been taken by the AIOFP board of directors during the association’s annual conference in Vietnam earlier this month.

The directors “decided unanimously to at least go to the next stage of facilitating a Queen’s Counsel’s opinion” on the AIOFP’s proposal, he said.

The decision was taken despite preliminary advice already received from lawyer Arwed Turon of Adelaide-based litigation firm Lindquist Partners, who was appointed to research the feasibility of a class action. Turon determined “the research houses have put so many disclaimers in place that it would be difficult at this stage to take action against them”.

“Simply put, the board decided that despite the elaborate web of disclaimers to protect their position, research houses should not act recklessly to the detriment of their clients,” Johnston said.

The AIOFP board has also recommended the establishment of “a fighting fund to finance the advice process, where affected members and other parties would initially contribute a modest amount related to their level of participation”, Johnston said.

“The board feels it is necessary that affected members should be demonstrating to clients they are being proactive in protecting their assets and research houses put on notice to raise their standards,” he said.