Langbar shareholders ponder legal action against brokers

Private investors in suspended cash shell Langbar International are considering legal action against their brokers and market makers, who they claim have failed to settle Langbar share trades in accordance with stock exchange rules.

If successful, investors could recoup the millions of pounds they lost when Langbar was suspended and then investigated by the SFO after it emerged that the shell could not prove its main asset, a £365m cash deposit in Brazil, existed.

Deloitte was recently appointed as Langbar's auditors and could be drawn into the search for the missing deposit.

Collectively, retail investors hold an estimated 8.5 million Langbar shares, more than major institutional investor Merrill Lynch and just behind Gartmore, the largest Langbar shareholder.

Shareholders suspect that they may be the victims of an abusive short-selling, with market makers selling Langbar shares that they did not physically possess or had not received delivery of themselves.

They claim that this is why Langbar transactions have not been settled on time, and they are seeking to reclaim their funds or damages in compensation as a result.

Brokers and market makers have argued that trades could not be settled because Langbar's stock was suspended, but Nigel Smith, who is advising private shareholder body the Langbar Action Group, said this was not the case.

'The suspension of a share is not a barrier to settlement, and according to stock exchange rules market makers brokers should use any and all means to settle on time,' said Smith. 'By failing to deliver shares they are in breach of contract.'

Smith, who also advised shareholders involved in the short-selling of stocks in AIM group Room Service, said the action group would first attempt to come to an agreement with brokers and market makers before pursuing court action.

A claim by Langbar shareholders against market makers and brokers for failing to meet settlement deadlines would not be the first

Last year, Room Service investor Andrew Tumber brought a £1,125 claim against market makers Shore Capital and brokers Halifax Share Dealing for failing to deliver shares by settlement date.

Tumber lost his case against Halifax because of an exclusion clause in its terms and conditions.

No damages were awarded against Shore Capital, however, because the court determined that the stock exchange had destroyed the value of the shares prior to lifting a suspension on the Room Service. This factor affected the level of damages payable by the market maker.