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Shire Council fallout from the 2007 GFC

Shire councils have settled their class actions against rating agencies nine years after risky speculation in the American housing market. Their high risk investment is explained in this clip from the Hollywood film The Big Short.

The Queensland’s publicly owned QIC used ratings agency Standard and Poors who were instrumental in giving AAA+ ratings to the institutions that traded in Certified Debt Obligations and collapsed during the financial crisis. The Qld Government now uses the rating agency Fitch’s.

In the article below the plaintiffs and their lawyers put a positive spin on their legal action but how and why did they make the investments of public monies in the first place?

Ian Curr
23 Feb 2016

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Settlement reached in class action against McGraw-Hill Financial, Standard & Poor’s over Lehman Brothers collapse

A substantial settlement has been reached in a class action involving dozens of councils and organisations related to the collapse of Lehman Brothers Australia

The group of 92 members led by the City of Swan in Western Australia and Moree Plains Shire in New South Wales includes investors, councils, churches and charities.

They had bought synthetic collateralised debt obligations issued by Lehman Brothers Australia and took the action against McGraw-Hill Financial and Standard & Poor’s.

The applicants alleged Standard & Poor’s engaged in misleading and deceptive conduct by assigning AA and AAA credit ratings to Lehman Brothers products.

City of Swan Mayor Mick Wainwright described the confidential settlement as “a welcome end to the monumental David and Goliath style action”.

He said the agreement vindicated the lengthy international pursuit to recover funds.

“As one of the few Australian local governments prepared to stand up to these international giants of the finance sector, we hope this settlement will finally see the conclusion of this eight year saga,” Cr Wainwright said.

While Moree Plains Shire helped lead the Standard & Poor’s case, the City of Swan had joined the Shire of Wingecarribee and the Shire of Parkes in the Lehman Brothers case.

City of Swan Executive Manager Colin Cameron said it looked like the end of a long road was near.

“We’ve been working towards this for many years, this started with our action against Lehman Brothers to try and knock out a Deed of Company Arrangement that would’ve given us less than 6 cents in the dollar,” he said.

“We were successful in that and then we went to the Federal Court to prove ourselves against Lehman Brothers.

“And now this final settlement we’ve made with Standard & Poor’s brings to an end a long, sad and sorry saga but it’s a good result for our group, absolutely.”

Case highlights need for transparency in assigning credit ratings

It was nearly three years ago that the Federal Court found Lehman Brothers Australia had engaged in misleading and deceptive conduct, breached fiduciary duties, breached contracts and acted in negligence towards plaintiffs.

The finalisation of that matter enabled the action against Standard & Poor’s.

Swan’s legal team Squire Patton Boggs worked with litigation funder IMF Bentham.

Squire Patton Boggs partner Amanda Banton said the group’s members-based purchase decision on the belief the ratings assigned by the agency were objective, and independent, and not influenced by any conflicts of interest.

She said the case highlighted the need for transparency and accountability in assigning credit ratings from big financial organisations.

The settlement comes after the City of Swan’s involvement in the Belmont Group of Litigants which brought back $220 million from the UK, and on top of a share of insurance proceeds distributed by the liquidator, amounting to more than $45 million.

The distribution of Lehman assets is yet to be concluded.

The Standard & Poor’s settlement is subject to court approval

David Weber

http://www.abc.net.au/news/2016-02-20/councils-hail-‘david-and-goliath’-legal-win-to-recoup-gfc-losses/7186012

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