Summary – Update: Local Councils, Church, Charities and Not-For-Profit Groups who purchased complex financial products from Lehman Brothers are set to vote on a settlement proposal to get up to half their money back from liquidators of the failed investment bank.
You may recall we posted a blog article in October 2012 titled “Lehman Brothers class action – a win for NFPs” regarding the representative proceedings or ‘class action’ filed on behalf of 75 Councils, Charities, Church and other Not-For-Profit groups who collectively lost over $200million when they purchased toxic securities sold by a subsidiary of Lehman Brothers called Grange Securities (Grange) prior to 2008.
After a long running legal battle the Federal Court held last October that Grange had breached its fiduciary duty to 3 Councils who filed proceedings as representative plaintiffs on behalf of 72 other Councils, charities, Church and other Not-For-Profit groups. By filing representative proceedings the Court may resolve issues of fact and law involving the applicants and the respondent that are common to claims that other group members have against the same respondent.
While no finding was made in respect of damages, Federal Court Judge Steven Rares in a detailed Judgment agreed that at the heart of the matter was whether the Councils were effectively duped into buying derivative financial products well beyond their stated risk appetite, largely because they represented soft targets for unscrupulous salespeople over more sophisticated investors. In that decision, Justice Rares said the question of how “relatively unsophisticated Council officers came to invest many millions of ratepayers’ funds in these specialised financial instruments” was the fundamental question in the case.
His Honour held that Grange was negligent in recommending to the Councils that they invest in the products and that it engaged in misleading and deceptive conduct in breach of s.12D of the ASIC Act by promoting the products as suitable investments.
Earlier this month, it was announced that the 75 participating Councils, Charities and Churches will now vote on a proposal to share in an estimated settlement of about $210 million which is equal to between 39.9 and 49.2 cents in the dollar depending on the class of investor.
The proposal is subject to approval by 75 per cent of each class of creditor by value and the Federal Court in order to be effective. The settlement, if approved, will be paid by Lehman Brothers to extinguish the finding made against its subsidiary Grange Securities.
Please contact Bill d’Apice or Chris Curran should you require further information.