IMF Australia to fund another NSW council's Standard & Poor's case

IMF Australia will fund a council's legal action against Standard & Poor's following a landmark court ruling this week against the rating agency in its battle with 13 other NSW councils.

IMF Australia will fund a council's legal action against Standard & Poor's following a landmark court ruling this week against the rating agency in its battle with 13 other NSW councils.

The company has agreed to fund Muswellbrook Shire Council's legal action against Standard & Poor's and investment bank ABN Amro, now owned by the Royal Bank of Scotland, in relation to the purchase of constant proportion debt obligation notes, marketed as Rembrandt notes.

The litigation was launched in the Federal Court in September.

It follows Monday's Federal Court judgment in which 13 councils, 12 funded by IMF Australia, successfully sued Standard & Poor's, ABN Amro and Local Government Financial Services (LGFS) over the purchase of Rembrandt Notes in 2006.

The councils lost $16 million, or 93 per cent of their capital investment, on the complex products they purchased from LGFS, a subsidiary of the NSW Local Government Superannuation Scheme.

The notes were created by ABN Amro, rated AAA by Standard & Poor's and distributed by LGFS.

Federal Court Justice Jayne Jagot said in her judgment that a reasonably competent ratings agency could not have rated the product AAA and that the rating was misleading and deceptive and a negligent misrepresentation to investors.

She ruled that the councils were also entitled to compensation from LGFS for breach of fiduciary duty.

Apart from that claim against LGFS, Justice Jagot said damages should be split evenly between ABN Amro, Standard & Poor's and LGFS.

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