Hopes that the controversy over minibonds would be resolved quickly have been dashed. The issues are complex and there are too many investors with different claims for a simple solution to be found. The government has made a good-faith proposal for the banks to buy back at market prices the minibonds and related derivative products linked to the defunct Lehman Brothers. But it is clear many of the investments are now worth little or nothing. So offers by banks to buy them back are unlikely to placate many of the investors.
To avoid long and costly court cases, the government and Monetary Authority are now encouraging investors to enter into mediation with banks. In some cases the authority will foot the bill. This is a welcome move. Hopefully, more cases will reach settlement through this potentially far cheaper and quicker process. But people should have no illusion that this will be the end of the matter.
The government first stepped in because the dispute threatened a political crisis. It seems likely there have been some cases of mis-selling and abuse of trust. Victims of these sharp practices deserve compensation and the companies involved deserve punishment. The government has, sensibly, offered to top up a Consumer Council legal fund to allow it to support joint lawsuits against banks involved in the more egregious cases, such as those involving elderly people with no investment experience.
No one could have predicted Lehman Brothers, a century-and-a-half-old Wall Street institution, would collapse so quickly. However, in many cases, and perhaps in the majority, investors simply made unwise decisions. In the end these cases are a private, civil matter. Officials are right to help facilitate settlements, but at some point they must step back and let the parties pursue their cases through the available legal channels. A line needs to be drawn, otherwise the government could find itself under pressure to become involved in other private disputes at the taxpayers' expense.
It is, however, sensible to encourage claimants to enter into mediation with the banks. There are advantages for both sides. It is much easier for the parties to compromise in mediation. For claimants this process holds out the hope of a quick cash settlement at little or no cost. Once a case goes to court, the two sides often dig in their heels, making a settlement less likely. Mediation is carried out behind closed doors, so the banks need not worry about admitting wrongdoing. No legal precedents are set. All this makes an agreement more likely. But mediation will not work in every case.
An alternative is arbitration. It is more formal than mediation, but can also be less costly and time-consuming than a lawsuit. However, investors need to be cautious because an arbitrator's decision is binding, leaving the loser in the case without recourse to the courts.
