By Francis Chan

DBS Bank has, for the first time, set out its legal case that investors were duly warned about ill-fated DBS High Notes 5 products - but also acknowledged one 'clerical mistake' in the documentation.

The bank has detailed its defence in a civil claim by 204 investors, who are suing the bank in a bid to recover the $17 million they lost on the complex products.

In the legal documents, obtained by The Straits Times yesterday, the bank reiterates its stand that full disclosure was given to all investors in the notes through documents, provided to them by the bank, such as a base prospectus and pricing statements.

Those documents also stated clearly that if a 'credit event' occurred before the maturity of the notes, 'investors may lose their entire investments and may not receive any principal amount'.

The 'credit event' was the collapse of US investment bank Lehman Brothers last September. Some investors burnt by Lehman-related products have reached agreements with the institutions that sold them the products.

In the affidavits, it is stated that one of four formulae - used to calculate the credit event redemption amount (Cera) - provided by DBS in the pricing statements and prospectus for the notes contained a clerical error.

The Cera determines how much an investor would get back in event that a 'credit event' occurs to one of the reference entities of the notes.

According to court records, affidavits were filed last Thursday by Ms Debbie Lam Thuan Meng, a senior vice-president at DBS's legal unit, on behalf of the bank. In the documents, Ms Lam disagrees with investors' claims that the four Cera formulae set out in the pricing statements of the structured notes were 'different, inconsistent and irreconcilable'.

'The plaintiffs' complaint underlying their claims in the (originating summons) is that the terms and conditions which governed the (High Notes5) contract were, insofar as the calculation of the Cera is concerned, uncertain,' she said.

DBS had presented four formulae to establish the Cera during a default scenario, in the pricing statements and prospectus of the notes.

Two formulae are absolute calculations, while the other two are percentage calculations.

DBS has stated that the four Cera formulae were 'accurate, consistent and reconcilable, except that the fourth Cera description contains an obvious clerical mistake'.

Instead of stating that the aggregate principal amount would be multiplied by the final price to obtain the Cera, it wrongly indicates that the aggregate principal amount would be multiplied by one minus the final price.

'The error reflected by '1-' in '(1-Final Price)' is an obvious clerical mistake which would have been apparent to any (High Notes 5) investor who had read the rest of the pricing statement,' said DBS in the court documents.

In July, The Straits Times reported that Premier Law - which is representing the investors - had served notice on DBS, stating that they wanted the notes declared 'void' and their stakes repaid based on 'prospectus and pricing statement relating to the notes'.

This article was first published in The Straits Times.