Yesterday was the last hearing day of a class action brought by 72 local government councils, charities and churches against global investment bank Lehman Brothers Australia
Limited (formerly Grange Securities Limited). The Councils, led by Wingecarribee Shire Council, seek $248 million in compensation from Lehman Australia for claims including breach of contract and fiduciary duty, misleading conduct and negligence. National law firm Piper Alderman (NSW, Australia), led by partner Amanda Banton, represents the Applicants.
The Applicants presented a full account of the advisory investment relationship that existed between the councils and Grange Securities, an investment firm purchased by Lehman in March 2007. Evidence brought on behalf of the Applicants included testimonies from several council employees along with extensive documents relating to the way collateralized debt obligations (CDOs) and other synthetic structured products were sold. After the Applicant’s evidence on the methods by which the CDOs were recommended, marketed and sold Lehman decided not to call any lay witnesses in its defence to counter the evidence of the Councils regarding the conduct of Lehmans and the representations made.
Piper Alderman’s success in gaining access to Lehman documents revealing details of an internal investigation into the conduct of sales staff as they marketed financial products including CDOs was important to the Applicant’s case. Lehman argued that these emails were privileged and confidential. His Honour Yates J of the Federal Court of Australia found that professional privilege had not attached to the documents and ordered their production.
An expert for the Applicant’s case provided the Court with an interpretation of one of these crucial emails, which read “Below are some switch ideas based on our axes both on and off the book. As we control the CDO market we should be able to execute any of these without issue.” The expert informed the Court that ‘Axes’ are a trader’s priorities and ‘a switch idea’ based on Lehman’s axes, would be based on their desire to add or to shed risk.
Another marketing tool used at the point of sale, as alleged by the Councils, was to explain that the products could be bought and sold at any time. Ms Banton said:
“it was particularly important to many of my clients that they could sell at any time and without penalty as they had uncertain liquidity requirements”.
An expert conceded that the products were “Buy and hold to maturity” products. The Applicants allege that at the time they were investing in these CDOs, it was represented by Lehman that there was an active secondary market for these products. A liquidity expert called by Lehman’s conceded that this was not the case saying, “I don’t believe that [the trades] are representative of any kind of normal market activity or normal arms-length activity between a customer and a broker or a customer and a fiduciary.”
The trial is now to be adjourned for one month, resuming on 30 May 2011 for one week. Ms Banton said:
“We are very pleased with the outcome of the case to date.”
Piper Alderman
Piper Alderman is a full-service, commercial law firm with offices in Sydney, Melbourne, Brisbane and Adelaide. We have 56 partners, over 160 lawyers and more than 325 staff in total. Our firm is committed to continual excellence in the practice of law, having been leading advisers to commercial interests across Australia for over 160 years. We have achieved our impressive growth by listening to our clients, responding to their needs and creating practical legal solutions.
To find out more about us visit www.piperalderman.com.au
