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The Federal Court of Australia ruled that investors were misled by Standard & Poor's when it awarded its highest credit rating to a structured financial product known as a constant proportion debt obligation or CPDO whose value then plunged during the global financial crisis.
The Federal Court of Australia has issued a landmark judgment that S&P’s rating of AAA of the Rembrandt 2006-2 and 2006-3 CPDO notes was misleading and deceptive and involved the publication of information or statements false in material particulars and otherwise involved negligent misrepresentations to the class of potential investors in Australia, which included LGFS and the councils, because by the AAA rating there was conveyed a representation that in S&P’s opinion the capacity of the notes to meet all financial obligations was “extremely strong” and a representation that S&P had reached this opinion based on reasonable grounds and as the result of an exercise of reasonable care when neither was true and S&P also knew not to be true at the time made;
ABN Amro was knowingly concerned in S&P’s contraventions of the various statutory provisions proscribing such misleading and deceptive conduct, and also itself engaged in conduct that was misleading and deceptive and published information or statements false in material particulars and otherwise involved negligent misrepresentations to LGFS specifically and the class of potential investors with which ABN Amro knew LGFS intended to deal, being the councils, by reason of ABN Amro’s deployment of the AAA rating and its own representations as to the meaning and reliability of the AAA rating which also were not true and ABN Amro knew not to be true at the time made.
Click here for full details of the judgment.
