Lehman Brothers subsidiary Lehman Brothers Australia has been found liable for collateralized debt obligation losses sustained by 72 councils, churches, and charities during the global economic crisis. The class action securities lawsuit was led by three Australian counsels—Wingecarribee, Parkes and Swan City. A fixed settlement amount, however, has not yet been reached. The parties will have to meet to figure out the damages, and their submissions will then be presented to the Federal Court later this year. (Because the defendant, previously known as Grange Securities, is in liquidation, it cannot make any payments right now). The three lead plaintiffs had sought up to $209M (US dollars), which is how much they say was lost from the CDOs.
The majority of the CDOs that caused the investors losses had been purchased from Grange Securities before Lehman Brothers Australia acquired the firm in 2007, which is the year when the bond world started to fall apart as the global economic crisis began to unfold. The plaintiffs are claiming alleged breach of fiduciary duty, misconduct, and negligence for how the defendant marketed the synthetic derivative investments.
Federal Court Justice Steven Rares, who issued the ruling, said the CDOs were presented as if they were liquid like cash and safe investments even though they were, in fact, a risky, “sophisticated bet.” He said the plaintiffs were told that they would get their money back if they held on to the CDO’s until maturity and that high credit ratings placed the securities in the same arena as the AAA-rated Australian government’s debts. They also presented the investments that it recommended or made for the plaintiffs as suitable for investors that had conservative goals.
The judge noted that although that each of the three councils that were the lead plaintiffs had different complaints, in relation to two councils, the defendant was negligent in the advice and recommendation it offered them. Also, as financial advisor to two of the councils, the financial firm breached its fiduciary duty and took part in deceptive and misleading behavior when it pushed the CDOs as suitable for them.
Court finds Lehman Brothers Australia liable in crash, AFP, September 21, 2012
Court orders Lehman Brothers Australia liable, Channel News Asia, September 21, 2012
More Blog Posts:
Stockbroker Securities Roundup: Criminal Convictions Vacated Against Six Charged in Front Running Scam and Citigroup Broker Cleared in $1B CDO Deal SEC Case, Stockbroker Fraud Blog, August 11, 2012
Some of the SEC Charges Against Investment Adviser Over Alleged Involvement In J.P. Morgan Securities LLC Collateralized Debt Obligation Are Dismissed, Institutional Investor Securities Blog, September 24, 2011
Lehman Brothers’ “Structured Products” Investigated by Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLPn, Stockbroker Fraud Blog, September 30, 2008
A collateralized debt obligation is a corporate structure created by an investment bank that distributes the cash flows from a series of assets—usually mortgage-backed securities, high-yield junk bonds, credit default swaps, and other high-yield, risky financial products from the fixed-income market. Unfortunately, leading up to the financial crisis, many financial firms marketed CDOs as lower risk than they actually were, which caused huge losses for investors.
At Shepherd Smith Edwards and Kantas, LTD, LLP, our collateralized debt obligation lawyers are familiar with the losses sustained by investors that were told that CDOs were suitable for them when in fact they were not. We continue to help our clients recoup these losses.