AUSTRALIA’S Federal court issued a landmark judgment yesterday that Standard & Poor’s misled investors by giving its highest rating to derivatives that lost almost all their value in the run-up to the 2008 global economic crisis.
The Australian case marked the first time a ratings agency had faced trial over the complex financial products widely cited as one of the factors that triggered the crisis and could set a precedent for future litigation around the world.
In a strongly worded judgment, Justice Jayne Jagot said S&P and ABN Amro had deceived 12 local councils that bought the triple-A rated CPDO, or constant proportion debt obligation, notes created by the bank.
The councils were assured the so-called Rembrandt notes bought from Australian Local Government Financial Services (LGFS) in late 2006 had a less than one per cent chance of defaulting. Within six months, they had done just that and the councils lost A$16m (£10.4m), or 90 per cent of the funds they had invested.
Jagot awarded the 12 councils in New South Wales state a total of about A$30m for losses and damages.
S&P said it plans to appeal the ruling.
City A.M. Reporter