MORE than 165 investors who lost about $20million in total on Minibonds started legal action yesterday against three firms linked to the sale of the failed investment product.

Notice was served on the Royal Bank of Scotland (RBS), Minibond Limited and Lehman Brothers Singapore in what it is hoped will serve as a test case.

They are bankrolling the action on behalf of five investors who lost about $2.1million on Minibonds Series2. The five, who are taking out the suit, were initially clients of ABN Amro, a bank which RBS took over recently.

The investors, from the Minibond Investors Action Group (MIAG), want to establish a precedent that will open the way for similar claims against other distributors of the notes.

'We believe the resolution of these issues will have a bearing on other series and financial institutions who sold the Minibond Notes,' said MIAG.

The five who bought Minibonds from ABN Amro, outlined their case in a comprehensive 63-page writ that was served on RBS, Minibond Limited and Lehman Brothers Singapore, by law firm Conrad Campos & Company yesterday. It claimed the distributor 'owed them a duty of care, and that they breached the standard of care, when they failed to properly understand the product'.

'(They) failed to check that information given to investors was accurate, and relied on faulty training materials to train their relationship managers, which then reinforced the misconception of the product,' said MIAG in a statement.

The group said investors bought the notes believing they were safe investments.

'What is consistent among MIAG investors is that all of them, regardless of their risk profiles, purchased the Minibond Notes in the belief that the product was low risk, simple and transparent,' claimed MIAG.

The group said the claim against the distributor was based on a premise of 'negligence and negligent mis-statements', as primary representations by distributors to investors about the product were false and misleading. They cite representations made via advertisements, and promotional and training materials prepared for relationship managers of distributors like ABN Amro.

A Monetary Authority of Singapore (MAS) report stated that ABN Amro sold Minibonds to 132 clients looking for less risky investments.

The bank also made mistakes and gave 44 investors a higher risk profile than was appropriate.

The bank's spokesman declined to comment on the lawsuit last night.

MIAG said the investors also allege fraudulent or negligent misrepresentation by Minibond Limited, the issuer of the notes, and Lehman Brothers Singapore, the arranger.

This is the second legal action by investors against financial institutions in recent months in the wake of the Minibonds scandal.

In July, 204 investors who lost about $17million on DBS High Notes5, another structured note linked to Lehmans, sued DBS Bank for a refund.

About 9,900 people here lost most or all of their investments totalling about $520million in structured products such as Minibonds and DBS High Notes5. A review process resulted in about 3,900 investors receiving $107million in compensation.

The scandal has sparked a series of reforms in the area of consumer financial services.

The latest came on Tuesday when MAS banned the use of terms like 'capital protected' or 'principal protected' because too many investors do not understand them.

franchan@sph.com.sg