The Macquarie Group reportedly faces a class action over valuations and broker recommendations of a junior mining company whose share price soared before collapsing.
A report by Fairfax Media says the bank’s brokers have been accused of “ramping” shares in Cleveland Mining Group when the miner bought an iron ore project in Brazil that later turned out to be worthless.
The report says David Mendelawitz, Cleveland Mining’s managing director, complained about the Macquarie advisers’ conduct to the corporate watchdog, ASIC.
In a letter to ASIC obtained by Fairfax Media, he raises concerns about three Macquarie employees based on information collected in a private investigation funded by a major shareholder.
“Macquarie has been aware of many of the claims for more than a year, after civil action was begun by a Ballarat businessman who lost about $4 million investing in Cleveland,” reports Fairafx.
The shares almost tripled to a high of 95 cents in the four months to April 2012 before sliding to 3 cents.
In a statement to the ASX this week, lawyers Macpherson Kelley, acting for Cleveland Mining and other former clients of Macquarie, says it has been investigating the conduct of the investment bank for three years.
“Conduct which we have uncovered suggests that those clients may have a claim against Macquarie for losses arising from advice provided by Macquarie advisors,” the letter says.
The investigation included an analysis of more than 16,000 share trades in the miner.
In a statement, Mendelawitz says the directors of Cleveland have long believed the share price went on an unsustainable rise in 2011 and 2012.
“Cleveland now belies that further action may be warranted which may lead to a claim for compensation by some shareholder groups,” he said.