Standard & Poor’s, found liable in November for misleading Australian towns with investment ratings, faces more lawsuits from councils and charities seeking to recoup their losses.
The city of Swan and Moree Plains Shire Council today sued S&P and its parent company McGraw-Hill Cos. in Sydney federal court claiming the AAA, AA+, AA and AA- ratings given to synthetic collateralized debt obligations were misleading. The two municipalites are representative plaintiffs for about 90 councils, religous organizations and funds who aren’t named in the statement of claim.
“This filing in Australia will pave the way for further filings in Europe,” John Walker, executive director of IMF (Australia) Ltd., the litigation funder, said in a statement. “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.”
Swan and Moree Plains bought a series of notes valued at A$76.5 million ($79 million), which lost 83.3 percent of their value, according to the statement of claim. The collateralized debt obligations, whose value collapsed following the global financial crisis in 2007, represent some of the $5 trillion that was invested in the products around the world, according to Amanda Banton, a partner at Piper Alderman in Sydney, who represents the towns.
“Our ratings were based on the good faith judgment of our analysts and reflect what they knew at the time,” S&P in Australia said today in an e-mailed statement. The rating company said it would defend itself against the suit.
Australia Federal Court Justice Jayne Jagot in November found S&P, ABN Amro Bank NV and Local Government Financial Services Pty liable for misleading other towns with descriptions and ratings that gave the impression of safe investments. She awarded those towns A$20.2 million plus costs incurred in the litigation.
S&P and ABN Amro appealed Jagot’s ruling. A date for the hearing hasn’t been set.
The U.S. accused S&P in February in a separate lawsuit of inflating grades on mortgage-backed securities to win business, helping trigger the worst financial crisis since the Great Depression.
The U.S. is seeking as much as $5 billion in damages in its lawsuit filed Feb. 4 in Los Angeles. S&P rated more than $2.8 trillion of residential mortgage-backed securities and about $1.2 trillion of collateralized-debt obligations from September 2004 through October 2007, according to the U.S. complaint.
The case is Between City of Swan and McGraw-Hill Companies Inc. NSD656/2013. Federal Court of Australia (Sydney).