* Litigation costly in Europe, blame difficult to prove
* Bankia offer prospectus included 16 pages of warnings
* Questions raised about how investors were sold shares
By Kylie MacLellan and Sarah White
LONDON/MADRID, May 30 (Reuters) - Shareholders in Spain's Bankia face an uphill battle to win any compensation for the collapse in the value of their investment less than a year after its Madrid flotation due to the cost and difficulty in proving who was at fault.
Shares in Bankia, which has so far asked the state for 23.5 billion euros to cover exposures to real estate, deteriorating loans and accounting discrepancies, have fallen 58 percent since the start of May. The stock is now 71 percent below the 3.75 euros per share it listed at in July last year.
That has virtually wiped out the investments of thousands of ordinary Spaniards who, bombarded by an intense TV and radio advertising campaign, bought a total of 60 percent of the 3.1 billion euro sale - investing an average of 6,000 euros each.
Complaints from consumer groups and minority shareholder associations have grown louder in recent weeks, and several have already said they are looking into legal options, primarily targeted at the Bank of Spain, stock market regulator National Securities Market Commission (CNMV) and auditor Deloitte.
But while class action lawsuits are relatively common in the U.S. thanks to more attractive litigation procedures, there is little track record of successful action in Europe.
"You either need to point to a misstatement; something which is misleading or untrue in the body of the prospectus, or you've got to find something which is a material omission which was dishonestly concealed," said Tony Katz, a commercial litigation partner at Orrick.
"The other thing one needs to prove is 'causation' and that is particularly difficult because you have to eliminate the other factors which are in play."
Bankia's offering prospectus included 16 pages of comprehensive and wide-reaching risk factors which it warned could negatively impact its business.
Lawyers said those would be the first line of defence if any action was taken, so investors face the difficult task of proving those running the sale knew more than they let on, most likely around the bank's working capital levels or financials.
The bank's parent group BFA said on Monday it had restated its 2011 results to reflect a 3.3 billion euro loss, rather than a 41 million euro profit following a review of its loan portfolios and capital needs.
In 2008, some 16,000 shareholders in Deutsche Telekom sued the company for up to 80 million euros, alleging it misled investors about its worth at the time of its third privatisation share sale, and also failed to tell them about acquisition plans that led to a big share price fall.
But after a four-year battle, the claim was rejected by a judge in Frankfurt this month who said there was no evidence the offering prospectus had included misleading statements.
Cost is another key issue. While claimants in the U.S. only pay fees if they win, in Europe there are not only upfront costs but shareholders can be left with hefty legal bills from the defendant if they lose.
Bankers familiar with Bankia's listing process said they did not see how the backlash could develop into a serious legal risk, however unpalatable the sight of angry savers was.
"What do they want - their money back because the share price fell? I don't think you can argue that," said one.
That view was echoed by some small shareholders, who said they realised getting money back in any way would be tough.
Yet even if suing proves unsuccessful, questions will inevitably be asked over how retail investors were sold the shares, potentially raising the prospect of misselling claims.
The listings of Bankia and its smaller rival Banca Civica , both largely shunned by international investors, were seen as a key test of government-driven measures to increase solvency ratios and reassure global markets about the stability of Spain's financial system.
At the time branch managers said a lot of pressure had been put on retail investors through an intense sales campaign.
ADICAE, a consumer organisation which represents banks, savings banks and insurance users, puts the number of small shareholders in Bankia at 500,000, of which roughly 120,000 were savers that ended up with products such as preference shares.
The group - which usually only deals with consumer and not shareholder issues - is getting involved in the Bankia situation because of what it denounced as "abuses" in the way shares were sold to customers, through branches networks and offered to clients as savings products.
"I don't know how the Bank of Spain and the CNMV could have allowed this," said Rafa Macillas, 43, who said his father had ended up with preference shares in Bankia. "We can't do anything as individuals, as a collective we may get somewhere."
The Spanish Association of Minority Shareholders of Public Companies, AEMEC, has also been looking at legal options, and slammed the way implicit government backing for Bankia's listing had masked a bad deal for investors.
Economy minister Luis de Guindos has so far discarded the idea of a full-on investigation into the saga, resisting calls for former chairman and government ally Rodrigo Rato to be publically grilled.
The CNMV, meanwhile, has defended its role in Bankia's IPO, saying it pressed for 40 percent of the free float to be sold to institutional investors, helping stabilize the stock price.
But with the lines of mainly elderly couples queueing up for information a damaging image, the plight of small shareholders is likely to remain a thorn in the side of a government with deep ties to Bankia's management at the time of its IPO.
"This is not going away any time soon," said one senior investment banker in Madrid. (Editing by Jon Loades-Carter)