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Lawyers who won a landmark case in Australia against Standard & Poor's over financial products that collapsed ahead of the financial crisis launched a new action Thursday 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 collateralised debt obligations or CDOs, were rated either AA or AAA by S&P before their value "plummeted during the global financial crisis of 2007 and 2008", IMF 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 Aus$200 million (US$206 million)."
The case will allege S&P "did not have reasonable grounds" to give the products top-notch ratings and falsely represented their assessment as "objective, independent (and) uninfluenced by any conflicts of interest".
It follows a successful world-first IMF 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 CPDOs.
In that case, the Federal Court of Australia ruled that S&P's assessment of the "grotesquely complicated" CPDOs, or constant proportion debt obligation notes, as extremely strong had been misleading and deceptive.
It was the first time a ratings agency stood trial over complex debt derivatives, whose collapse was seen as a major cause of the 2008 global meltdown.
IMF executive director John Walker said the new case, also being fought in the Federal Court, would build on the precedent set last year and lay the foundations for similar actions being prepared in Europe.
Walker said IMF was pursuing cases on behalf of European pension funds, banks and others over derivatives, including a claim in the Netherlands against the Royal Bank of Scotland and S&P and another against Moody's in Britain.
"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," said Walker.