Moree Plains Shire Council is one of 12 regional councils involved in a class action following investments in the complex financial products known as constant proportion debt obligation (CPDOs) that were arranged by bank ABN Amro (now RBS), highly rated by Standard and Poor’s (S&P) and sold by Local Government Financial Services (LGFS) prior to the global financial crisis.
The full bench of the Federal Court of Australia dismissed an appeal by the defendants, ratings agency Standard and Poor’s, ABN Amro (now RBS) and Local Government Financial Service, in favour of 12 Councils who suffered losses on financial investments.
This ruling has significant global ramifications.
The joint councils were successful in their cross-appeal with the Court ruling that the defendants were each severally liable for 100 percent of the damages sustained by the joint councils, and not proportionately liable as was stipulated in an earlier judgment.
It is expected that the joint councils will be able to recover around $25 million in losses from the failed investments.
Moree Plains Shire Council’s Director Corporate Services Mitchell Johnson said the court found S&P had acted in a misleading and deceptive manner by giving the products a triple-A rating when they knew the products did not deserve the rating.
“We are pleased that the appeal against the 2012 judgement was upheld and the original decision finding S&P, ABN Amro and Local Government Financial Services remain liable for their actions.
“Our staff are cautious on how they invest the Council’s money and we trusted Standard and Poor’s ratings on the investments, however they now have been found to be false and misleading,” he said.
European institutional investors in Amsterdam and the US Department of Justice have also launched law suits against S&P for its ratings of the toxic securities prior to the global financial crisis.
