Net1 feels legal heat in the US

2014-01-12 14:00

US investors launch class action against electronic payment provider, which was awarded a tender to distribute welfare grants in SA

A US law firm has filed a class action lawsuit in New York against electronic payment provider Net1, which also distributes welfare grants in South Africa.

Net1 has a primary listing on the Nasdaq stock exchange.

The class action is on behalf of investors who bought Net1 shares between August 27 2009 and November 27 2013.

It seeks damages for alleged violations of US federal securities laws under the Securities Exchange Act.

At the heart of the lawsuit is the controversial awarding of a tender to Net1 in 2009 to distribute welfare grants to more than 15?million beneficiaries over five years.

Rival bidder and Absa subsidiary AllPay alleged foul play in the awarding of the R10?billion tender and took Net1 subsidiary Cash Paymaster Services to court.

The North Gauteng High Court ruled that the tender was invalid, but could not set it aside for fear of disrupting the welfare system, while the Supreme Court dismissed AllPay’s complaint.

However, in November last year the Constitutional Court found in favour of AllPay and declared the awarding of the tender constitutionally invalid.

The Constitutional Court is due to have a review on how to remedy the current situation without placing the welfare system into jeopardy.

The legal wrangling with AllPay, including an announcement of an investigation by the US department of justice under the Foreign Corrupt Practices Act, wreaked havoc on Net1’s share price.

The class action legal complaint alleges that Net1 made misleading claims and/or failed to disclose its “practices to secure contracts in South Africa were in violation of the Foreign Corrupt Practices Act; and as a result of the above, the company’s financial statements were materially false and misleading at all relevant times”, according to a statement by the law firm.

Net1 spokesperson Dhruv Chopra confirmed that the justice department investigations were ongoing and “we do not know when they will conclude”.

According to the law firm, on the news of the investigation by the department of justice, Net1 stock declined by nearly 59% on the Nasdaq stock exchange.

And Net1’s shares slumped when the Constitutional Court judgment declaring the tender invalid was announced.

About eight other law firms are trying to find a way to become part of the same case by looking for investors who feel hard done by.

Acknowledging the case, Chopra said: “We will naturally respond to any actions as necessary.”

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