| Slater & Gordon faces shareholder class action led by rival Maurice Blackburn |
Embattled legal firm Slater & Gordon has just suffered the ultimate ignominy.
Just when it appeared its plight could not get any worse, the class action specialist, which for generations has taken on the might of the corporate world on behalf of the underdog, has found itself on the receiving end of a class action threat.
Rival law firm Maurice Blackburn has called for disaffected shareholders to register for a legal assault against the company.
Maurice Blackburn principal Jacob Varghese said Slater & Gordon (SGH) shareholders had suffered an almost 90 per cent fall in the value of their investment since April.
"Slater & Gordon shareholders have a right to be profoundly disappointed in last week's announcement and subsequent further price drop," he said.
Late last month, Slater & Gordon attempted to quell investor unease over its plunging share price by assuring investors, through the share market, that it was on track to fulfil its earnings projections.
Last week, just 17 days after the announcement, it backed away from the promise.
"To be walking away from the earnings guidance it reaffirmed only a few weeks ago makes it increasingly hard to believe that the company has proper systems in place or that the guidance should have been given in the first place," Mr Varghese said.
"We now know SGH has made admissions to the Australian Securities Exchange that the company had prior knowledge of last week's announcement, and it appears highly likely that among the throng of management issues it has grappled with this year are further breaches."
World-first listed law firm now a short-seller target
Slater & Gordon was the first law firm in the world to list on a stock exchange when it went public in 2007 and quickly embarked on a robust expansion plan, acquiring smaller firms in Australia before utilising the same strategy in Britain.
At the time, chief executive Andrew Grech said the bold move would usher in a new era in services firms.
But the firm came to grief with its ambitious and ill-fated purchase of a UK business in March this year.
When it announced it would fork out $1.3 billion for the professional services division of legal and insurance outfit Quindell, investors were stunned. The target was valued at about the same price as Slater & Gordon.
Shareholders were asked to stump up an extra $890 million to fund the purchase with the remainder funded by $390 million in new debt.
Slater & Gordon shares peaked at $7.85 shortly after the Quindell acquisition. But doubts quickly began to surface about business practices and accounting standards at the UK group, doubts that began to focus on the Australian firm's own bookkeeping practises.
In particular, concerns were raised at how earnings on legal cases yet to be resolved were being booked as profit.
Before long short sellers began to target the law firm and its stock went into rapid decline.
On June 29, the firm announced that it was being probed by the Australian Securities and Investments Commission and that it had uncovered accounting errors in one of its UK operations.
The announcement shattered investor confidence - the stock plunged 25 per cent that day and has been spiralling since.
Slater & Gordon spokesperson Angela Bell did not return the ABC's calls.
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