Echelon clients bring lawsuit against IG
Wednesday 24 November 2010
IG Group, the spread betting company, has been slapped with a €25m (£21m) lawsuit over the collapse of a Scottish wealth manager two years ago.
The group released a statement to the market yesterday revealing its subsidiary, IG Markets, had been served with a High Court claim.
This action was brought by three clients of Echelon Wealth Management, a Glasgow-based derivative broker and former client of IG.
Echelon crumbled in October 2008, just a month after the collapse of Lehman Brothers had sent the financial markets into a tailspin.
After Echelon failed to make a margin call from IG, the group closed out all of its positions. Subsequently, three unnamed clients of the broker launched a series of actions for damages, including against Echelon and IG Group. IG said that after seeking legal advice, it considered the claim to be "speculative and without foundation and will defend itself vigorously".
It added that even a successful action would not have any material impact on its operations. Sources close to the group revealed that the company was so confident it had not made provisions for the loss.
Analysts at Numis Securities pointed out that IG held £222m in cash at the end of May, so such a payout would not hit the group hard, but added the case was unlikely to go to court. They said: "If it does, given IG acted in line with its contractual conditions of business, we believe they will win." Vivek Raja of Panmure Gordon called the claim "speculative".
IG Markets is the company's contract for difference (CFD) arm. CFDs work like spread bets, where clients can make cash gains on price rises without buying the actual shares, and according to recent research 93,000 UK residents used financial spread betting products.
Over the summer IG revealed that the volatility in equity and foreign exchange markets had seen new customers flock to its service.
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