Lawyers who won a landmark case in Australia against Standard & Poor’s (S&P) over financial products that collapsed ahead of the financial crisis of 2008 and 2009 launched a new action yesterday against the ratings agency.
IMF Australia, a publicly listed company that funds large legal claims, said it had filed a fresh case against S&P on behalf of 90 churches, councils and charities who lost hundreds of millions on synthetic derivatives.
The products, known as collateralized debt obligations (CDOs), were rated either “AA” or “AAA” by S&P before their value “plummeted during the global financial crisis of 2007 and 2008,” IMF Australia said.
“The investors, which were almost exclusively investing public funds to facilitate public works and community services, required high ratings by an independent, objective ratings agency for any investment they contemplated,” the firm said.
“They would not have invested in the CDOs, but for the representation and the high ratings ascribed to the securities by S&P and therefore would not have suffered losses in excess of A$200 million [US$206 million],” it added.
The case alleges that S&P “did not have reasonable grounds” to give the top ratings and misrepresented its assessment as “objective, independent [and] uninfluenced by any conflicts of interest.”
It follows a world-first IMF Australia lawsuit against the ratings agency last year on behalf of 13 Australian towns that lost US$16.5 million on another class of “AAA”-rated synthetic derivatives called constant proportion debt obligations.
In that case, the Federal Court of Australia ruled that S&P’s assessment of the “grotesquely complicated” derivatives as extremely strong had been misleading and deceptive.