Court orders Lehman to compensate Australian investors
22 September 2012
The Federal Court in Australia has found the Australian arm of failed Wall Street bank Lehman Brothers was in breach of its fiduciary duty on its advice to local councils and charities for taking a little more than a ''sophisticated bet.'' The bank has been ordered to make payments of millions of dollars in compensation.
In a landmark decision, the Federal Court held that the firm, earlier called Grange Securities, was conflicted in its duty to give sound financial advice to the councils ''and its own interest in earning very large fees or profits'' with its sales of investments known as synthetic collateralised debt obligations.
Justice Steven Rares also slammed the federal government for replacement of the ''elegantly simple'' rules against misleading and deceptive conduct contained in the old Trade Practices Act with ''a labyrinth of statutes''.
The ruling now clears the deck for dozens of councils, charities and church groups to recover over $200 million from the liquidator of Lehman Brothers Australia.
''Grange is liable to compensate the councils for their losses incurred as a result of their investments,'' justice Rares said in his findings.
The class action was led by Wingecarribee and Parkes council in New South Wales and Western Australia's City of Swan. In all 72 councils and charities were involved in the suit against the liquidators of Lehman.