IMF Australia plaintiffs win against Lehman Brothers

Bentham Capital’s Parent Company Funds 72 Municipalities and Charities in Unprecedented Victory, With Possible Damages of $230 Million

NEW YORK, September 25, 2012: In a judgment handed down on Friday, September 21, 2012, the Australian Federal Court found that Lehman Brothers Australia had breached its fiduciary duties to municipalities, charities and churches by selling them highly risky, “synthetic” collateralized debt obligations (SCDOs), which blew up in the housing crisis. The judgment is the first in the world to find a global investment bank liable on both legal and ethical grounds for the sale of such toxic SCDOs.

IMF (Australia), Bentham Capital’s parent, has been providing critical financing to plaintiffs in the long legal battle leading up to Friday’s win. A separate damage phase will follow, but experts believe that Lehman’s estate may be liable for as much as $230 million or more in damages. Read the summary and full judgment here.
 
IMF is the world’s first publicly traded litigation financier and the most experienced and successful funder in the world, with a 95% success rate in over 100 completed commercial cases. IMF invests in the US (through Bentham Capital), the UK, South Africa and New Zealand, in addition to Australia. Bentham Capital, based in New York, invests in large commercial and patent disputes.

The liability findings against Lehman are significant for a number of reasons. First, Justice Rares, for the Court, held that the investors were not properly advised of the risks involved in highly complex financial products. He wrote: "I have found that [Lehman Austrialia] engaged in misleading and deceptive conduct in breach of [the Act] when it promoted the SCDOs to the [municipalities] in terms of suitable investments.” He also found that Lehman had breached its fiduciary duties to plaintiffs.

Second, John Walker, executive director of IMF, said the ruling paves the way for larger plaintiff recoveries than expected: “Plaintiffs and certain other creditors will divide around $230 million in assets of Lehman Australia. This means each and every municipality, charity and church will likely receive three or four times what was offered them by the liquidators three years ago.”

Ralph Sutton, Bentham’s Chief Investment Officer, described IMF’s role in the action: “IMF decided to help plaintiffs because a global investment bank targeted not-for-profit organizations with outrageous conduct, as found by the Court.  Plaintiffs could never have achieved this result without our help.”

Finally, the judgment is significant as it may lead to many other similar actions relating to SCDOs by municipalities and not-for-profits in Australia, as well as in the US and Europe.

Waiting in the wings is IMF’s funded action against ABN AMRO and Standard & Poors over similar synthetic products known as Constant Proportion Debt Obligations. A judgment in Australia is expected in the near future. John Walker added: “Success in the S&P action will also open the floodgates to new rating agency cases in the US, as well as in Oz.

Contact
Ralph Sutton Bentham Capital LLC 712 Fifth Avenue New York, NY 10019 T: +212 488 5331 M: +646 644 8366