Standard & Poor – Not so highly rated

Scores of Australian investors have filed a second class-action lawsuit against Standard & Poor’s (S&P), claiming the ratings agency misled them by giving its highest rating to derivatives that lost almost all their value in the runup to the 2008 financial crisis.

IMF Australia Ltd, a company that funds large class-action lawsuits, said the group of 90 councils, churches and charities had lost more than A$200 million ($207.02 million) after investing in high-risk financial products known as collateralised debt obligations (CDOs).

S&P gave its top AAA and AA ratings to eight CDOs sold by U.S. investment bank Lehman Brothers, which collapsed during the crisis.

S&P said it believed the lawsuit was without merit, and that it would vigorously defend itself against it.

“Our ratings were based on the good faith judgment of our analysts and reflect what they knew at the time,” S&P said in an emailed statement.

The lawsuit follows a landmark ruling by the Australian Federal Court in November in a class action lawsuit brought by 12 local councils, also funded by IMF and brought against S&P owner McGraw-Hill Companies Inc.

The court found in that case that S&P’s ratings for the CDOs in question were “misleading and deceptive.”

S&P has appealed against that decision, which would force McGraw-Hill to pay the councils around A$30 million.

“Rating agencies played a pivotal role in the miscalculation of billions of dollars worldwide from 2005 to 2008 and it is important they be held accountable,” IMF Executive Director John Walker said in a statement.

Around 70 of the investors in the current class-action lawsuit are already part of a separate suit against Lehman Brothers Australia.

Liquidators for the Australian arm of the investment bank applied to the Federal Court earlier this week seeking approval for a deal that would return around A$211 million to those 70 investors.

IMF said the money claimed under the current lawsuit represents the balance of their losses after any payment from Lehman Brothers. vSOurce: Reuters