Ratepayers get $2m windfall in landmark court victory

Cooma-Monaro Shire Council is hoping to recoup $1.86 million of ratepayers' money lost in investments five years ago after a landmark court ruling against three financial agencies was handed down this week.

Cooma council was one of 13 in NSW to lose millions of dollars on investments given a AAA rating during the Global Financial Crisis.

The councils, which lost an estimated $15 million, took class action against ratings agency Standard and Poor's (S&P), investment Bank ABN AMRO and Local Government Financial Services (LGFS) to recoup losses claiming negligent misrepresentation to investors.

On Monday, the Australian Federal Court handed down its ruling in favour of the councils' claim for damages sustained through questionable packaging of indexed products by ABN AMRO, rated AAA by S&P and on sold by LGFS to the councils in 2006.

It found the rating was misleading, deceptive and negligent.

Cooma council is hoping to recoup all funds lost plus damages, but the final payout is yet to be determined.

Cooma mayor Dean Lynch welcomed the decision and said the judgement would ensure rating agencies and professional financial advisors were held accountable.

"This judgement vindicates Cooma-Monaro Shire Council's position and I am thankful that ratepayers' funds will be recovered so that we can continue to provide the desired services to our community," he said.

Cooma council had invested $1.86 million in the financial product known as a Constant Proposition Debt Obligation or CPDO and referred to as "Rembrant series 2006-2/3".

The aim of the CPDO was to pay councils a high periodic coupon by taking leverage exposure to a notional portfolio of credit indexes. The investment portfolio was recommended to all NSW councils by LGFS and endorsed by NSW Treasury.

"This investment was made on the clear understanding that appropriate due diligence and financial assessments had been undertaken by our professional financial advisers, LGFS," Cr Lynch said.

"Council understood the process included consideration that the CPDO 'Rembrandt' was rated AAA on both principal and interest and fully complied with the ministerial investment order of not placing the community's funds at risk.

"The CPDO was unwound within 12 months, sustaining losses to all investors and the class action materialised."

It could still be some time before council receives any money.

The Federal Court ruled that the three financial agencies pay one-third each of the amount lost by the councils and gave the parties involved 21 days to agree on the outstanding issues of interest foregone and sustained costs.

The final ruling on interest and costs sustained is expected to be delivered in early December.

However, as S&P have indicated its intention to appeal against the judgement, the final payment to councils could take additional time to finalise.

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