FNZ braces for class action as employees stage revolt

Global wealth technology developer FNZ is reportedly facing a costly class action lawsuit from hundreds of disgruntled staff-shareholders, with the New Zealand-born firm being accused of unfairly diluting their holdings in the company.

Reporting on the prospective lawsuit earlier today, the Australian Financial Review (AFR) revealed the company could face legal action from employee-shareholders within weeks.

The basis of the suit is discontent from employee-shareholders over the firm’s preference share arrangement across three capital raise rounds, which they allege has led to a significant erosion in the value of their holdings.

The successful capital raising drive, conducted over the last 18 months, saw FNZ receive US$1.5 billion from institutional investors; as part of the terms of the preference share deal, these investors have been guaranteed returns of up to two to three times over a two-year period.

As part of the capital raise terms, institutional investor shares were ranked higher than employee-held shares; this arrangement effectively diluted the value of the latter’s holdings.

The employee shareholders claim these capital raises diluted their class of shareholding by as much as $US4.5 billion (AU$7.1 billion), with the affected employees alleging a breach of New Zealand’s Companies Act with respect to the business operating in a manner deemed “oppressive, unfairly discriminatory, or unfairly prejudicial”.

Despite concerns expressed by shareholder-staff over the preference arrangement during the previous two rounds, FNZ followed through with its third capital raise on similar terms, with pledges of “catch-up notices” to employee shareholders. These catch-up notices have reportedly been delayed twice so far.

The brewing employee revolt surfaced in the media in March, with employees claiming that shareholder holdings, previously valued in the millions, were diluted to virtually nothing following the capital raises.

“The relationship between the new management and key long-serving staff has broken down, and it’s getting worse every day this goes on,” an unnamed FNZ employee quoted to online New Zealand publisher BusinessDesk in March.

The staff member added: “If it goes to court, it is in nobody’s interests and would be a long drawn-out process which would be terminal for the company.”

Online publication Citywire reported at the time that a group of 215 employee-shareholders co-signed a letter criticising the initial two capital raise share preference arrangements, with concerns their ordinary staff ‘class B’ stock would be diluted by US$3 billion.

The employee-shareholders argued they could face a further US$1.5 billion dilution resulting from the most recent capital raise.

The FNZ staff group have reportedly engaged New Zealand law firm Meredith Connell (MC) to pursue civil action against the company and its directors for their alleged breach of the Companies Act.

The AFR reported that the number of staff in the class action has increased to more than 300, with “hundreds of additional FNZ employees participating in a share-based incentive scheme” also said to be joining the civil suit.

Shareholders who are present and former employees represent the second-largest FNZ investor group, representing around one-third of the company shareholders.

Founded in 2003 in Wellington, New Zealand as a business unit within the NZ branch of investment bank Credit Suisse, the privately owned wealth technology developer today employs around 6,000 people across 30 countries. While headquartered in London, FNZ remains domiciled in New Zealand.

A kiwi success story, FNZ today counts more than 650 financial institutions clients (including a number of big-name clients, Colonial First State, Santander, NAB, and Vanguard), and upwards of 12,000 independent wealth managers leveraging its technology, with around $1.7 trillion in assets under administration.

The firm was valued at US$20 billion in 2022, however, as the AFR noted, a valuation was not disclosed with the latest fundraising.

FNZ was contacted for further comment but did not respond before publishing.