OW Bunker Collapse: Carnegie, Morgan Stanley Could Be Liable for IPO Prospectus Omissions

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Two investment banks involved in last year's initial public offering (IPO) of OW Bunker, Carnegie and Morgan Stanley, Monday were said to be potentialy liable for omissions in OW Bunker's listing prospectus of risky elements of its business, Danish media reports.

The banks are said to have written in a memo to members of the "Project Oak" IPO team that the prospectus must make mention of OW Bunker's speculative "risk management" oil trading activities.

However, critics say that while the issued prospectus had several references to risk management, it fell short of describing the true extent of the company's speculative oil trading for profit.

It has been estimated that "risk management" contributed an average of one third of OW Bunker's profits during the 2009-2013 period.

The memo is also understood to point to the issue as being sensitive as regards the reactions of potential investors, particularly pension funds, banks, and individuals.

Søren Friis Hansen, professor of corporate law at Copenhagen Business School (CBS), said the document suggests that at least Carnegie and Morgan Stanley would have been aware that this was information of substantial importance, which should have been included in the prospectus.

Given they would then be aware that information of substantial importance for the evaluation of the company had failed to make it into the final prospectus, it would then mean that they also run the risk of a prospectus liability, he added.

The Project Oak team is said to have included OW Bunker management, private equity backers Altor, the banks, and law firm Kromann Reumert.

According to the report, the two banks have thus far avoided most of the negative coverage of the events that led to the collapse of OW Bunker less than a year after its listing.

The banks are estimated to have earned a combined total of between $40 million and $60 million from their work on the IPO.

In November, OW Bunker filed for bankruptcy following the announcement of a $150 million "risk management" loss and a $125 million loss at Singapore subsidiary Dynamic Oil Trading (DOT).

The revelations come alongside news that all mention of DOT was deleted from the final prospectus one month before it was issued to investors.