The Wingecarribee Shire Council in New South Wales has filed a $59 million claim alleging it was misled when Grange Securities sold it collateralized debt obligations (CDOs) that plummeted in value when the subprime crisis hit global credit markets last year. As reported by The Age, Grange has since been acquired by Lehman Brothers (LEH) and Lehman is the named defendant. According to the article, many prospective litigants will be watching closely — law firm Piper Alderman has reportedly signed up more than 30 other councils and investors who have also suffered losses from CDOs.
Lehman’s defense in the court proceeding is that it could not have foreseen the subprime mortgage meltdown in the US, and that Wingecarribee failed to adequately inform the bank of its investment requirements and failed to properly understand the nature of the instruments it invested in.
Wingecarribee claims that Grange sold it Federation CDO notes in May 2007, when Grange must have known that the securities were already at risk and credit markets were becoming dangerously volatile. The value of the Federation notes has since plunged by 90%.