Australia’s main securities-industry watchdog may soon face pressure to reimburse millions of dollars in legal fees after a bungled lawsuit against logistics technology firm GetSwift Limited (ASX: GSW), according to people familiar with the matter.
The failures of Australian Securities and Investments Commission (ASIC) have been well documented over the last year, with prominent attorneys calling out the unsuccessful action against Westpac in the Federal Court and a judge ruling the regulator showed “confirmatory bias” and failed to back up its “various cover up and conspiracy theories” against Harold Mitchell in its Tennis Australia case.
According to Jones Day, Australia has ignored the lessons of developed countries such as the United States and United Kingdom over the last decade, and has clung to an “inflexible mantra” that continues to trammel its ambitions to be regarded as a legitimate financial center rather than a remote country home to a few natural resource companies.
The troubling pattern has continued in the case of GetSwift, a SaaS company operating across dozens of countries in the white-hot space of last-mile delivery, which has thrived during the coronavirus pandemic. For the last year and a half, ASIC has attempted to show that GetSwift made misleading public statements about client contracts.
The case has been a public embarrassment for ASIC, Other announcements that ASIC had claimed were dubious have also been validated in open court, such as Amazon, YUM brands and NA Williams.
The expense to Australian taxpayers has not gone unnoticed. Indeed, Legal sources estimate that ASIC itself has spent approximately $18 million on attorneys to sue GetSwift. Meanwhile, the Tennis Australia debacle cost taxpayers an estimated A$3.5 million ($2.5 million), according to the Australian Financial Review. It is undeniable that those squandered funds could have been used to help Australians who are suffering from an economy crippled by the coronavirus pandemic.
The Australian taxpayer bill could be yet higher when all is said and done with GetSwift. As the abortive case against approaches a close, legal experts have begun to ask privately if ASIC will reimburse the company for the pile of legal bills it has incurred. A recent financial analysis points out that legal fees accounted for a full third of the company’s sales, general, and administrative (SG&A) expenses in the six months through December 2019, the most recent time those figures were disclosed.
How much could the total be? In the six months through December, there were A$3,318,000 ($2,389,000) in legal bills, according to the company’s financial report. Assuming that run rate for two years, the grand total would be about $10 million. But given the intensity of recent courtroom appearances, the true number could conservatively be $15 million – similar to estimates of ASIC’s own costs.
There is good reason for ASIC to feel pressure to pay GetSwift for damages. Data from Dealogic show that the country’s technology IPO volume has shrunk to virtually zero in the last few years. Reports indicate that other companies have been scared off from listing in Sydney after watching the technology company come under attack.
Investors have been puzzled by ASIC’s campaign against GetSwift. In a recent interview with Bloomberg, GetSwift’s largest outside shareholder, Charles Frischer, said the stock could rise five-fold in the next 18 months. He also said the main obstacle remains the “overly aggressive” ASIC whose “goal or purpose is entirely unclear.” Observers note that the case seems to be driven by politics, and not by common sense and facts.
GetSwift has found success in spite of the cost and distraction of the legal battle. The company posted a 45% sequential increase in revenue and other income totaling A$12.6 million versus the previous quarter and an 800% increase compared to the same quarter last year. That makes 15 consecutive quarters of increased growth.
Legal experts view the GetSwift situation as a grim sign of things to come. “It might be expected that the [Australian] regulators experience a number of losses in court over the coming years as the ‘litigation blitz’ unfolds,” Jones Day wrote in a recent article, noting that the United States Securities and Exchange Commission has dialed back aggressive litigation. “The SEC did this because it diverted resources from high-priority issues…and provided poor incentives for the SEC by rewarding them for the quantity, rather than quality, of their cases. The strategy, in the view of some, also imposed unwarranted costs on companies and individuals.”
GetSwift could not be reached for comment.