Australian funder eyes UK ratings agency litigation

Australian litigation: paving the way for European claims

Australian third-party funder IMF is eyeing up UK litigation over ratings given to “toxic” financial products.

The company last week announced its intention to file a claim in Australia on behalf of 90 councils, churches and charities against US-based ratings agency Standard & Poors (S&P), related to S&P’s granting of AAA and AA ratings to eight collateralised debt obligations (CDOs).

The investors allege the ratings given to the CDOs, the value of which plummeted during the global financial crisis of 2007 and 2008, were made without a reasonable basis.

The investors, which were almost exclusively investing public funds to facilitate public works and community services, said they required high ratings by an independent, objective ratings agency for any investment they contemplated.

They claim that they would not have invested in the CDOs but for S&P’s ratings, and therefore would not have suffered losses in excess of $200m.

IMF is funding the claims of about 70 of the investors in a separate class action against Lehman Brothers Australia – which distributed the CDOs and is now in liquidation – which may now be settled by the creation of a scheme of company arrangement.

The investors’ claims against S&P will be for the balance of their losses after receipt of any monies from Lehman.

IMF executive director John Walker said: “This filing in Australia will pave the way for further filings in Europe funded by IMF, on behalf of European pension funds, banks and other investors, seeking compensation for losses suffered after investing in complex financial products.”

These are expected to include claims against agencies in the Netherlands and the UK.

“Rating agencies played a pivotal role in the misallocation of billions of dollars worldwide from 2005 to 2008 and it is important they be held accountable,” Mr Walker said.

In a statement issued to Reuters, S&P said it believed the lawsuit was without merit, and that it would vigorously defend itself against it. “Our ratings were based on the good faith judgment of our analysts and reflect what they knew at the time,” it said.

The new claims follows a landmark victory late last year in a case brought by IMF on behalf of 12 councils against S&P involving complex financial products sold in Australia. The A$20m verdict is being appealed.

  • The board of Harbour Litigation Funding has been rejigged with the appointment of former Irwin Mitchell senior partner Michael Napier – formerly a consultation to the company – as chairman and Nicola Mumford as a non-executive director. Ms Mumford, a member of Harbour’s investment committee, is the former London managing partner of Wragge & Co.