German High Court Finds for Investors in Deutsche Telekom IPO Dispute

Germany’s Federal Court of Justice has ruled that thousands of small investors were misled by Deutsche Telekom in 2000, as the telecoms group failed to adequately inform potential shareholders of possible risks in its prospectus for a planned initial public offering (IPO).

About 17,000 of the group’s shareholders have filed claims for damages for the losses incurred from a drop in the share price when Deutsche Telekom wrote down the value of a real estate portfolio several months after the shares listed.

They contend that the IPO prospectus was overly optimistic about the operator’s valuation and failed to inform potential buyers of the new shares in an appropriate way.

However, despite ruling in their favour the court stopped short of demanding that the group pay damages to investors. “It hasn’t been finally decided whether Deutsche Telekom will be required to pay compensation because of the error in the prospectus,” the ruling read.

The lower court, the Higher District Court in Frankfurt, will now decide whether Deutsche Telekom was at fault in relation to two other issues that were not part of the ruling. That decision will be crucial in determining whether compensation payments are due, said a spokeswoman for the Frankfurt court.

The lower court will decide whether the fault in the prospectus was intentional, or simply negligent. It will also decide whether certain risks were inadequately set out in the IPO prospectus and whether they contributed to the subsequent fall in the share price

Lawyers for the investors, who are seeking €80m in compensation, welcomed the decision and said that it paved the way for damages.

Deutsche Telekom, formerly a state monopoly, was partially privatised in three capital issues in the 1990s and 2000. In the final raising of capital, 200m shares were sold at €66.50, raising €13bn in total proceeds.

Before the final capital issue, the group booked a capital gain of €8.2bn for the sale of its stake in US telecoms company Sprint. However, the court decreed that this was “objectively false”, as the shares were not sold but transferred to a Deutsche Telekom subsidiary.

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