Sunday, December 9, 2012

The Smartest Women In The Room: The Landmark Australian Judgment Against S&P and ABN Amro (MHP; RBS)

In last year's "Here at ENN (Enron News Network) We Believe...(the journalists who covered the story) I linked to some of our posts on Bethany Maclean and a subject near and dear to our hears, Enron.
Ms. MacLean's 2001 Fortune article "Is Enron Overpriced?" helped bring down what was at that time the 6th biggest company in the world. Her (and Peter Elkind's ) subsequent book "The Smartest Guys in the Room" was one of the better generalist explanations of what happened although the WSJ's (now Bloomberg's) Jonathan Weil was actually earlier and more dogged in his reporting.

I used the Smartest guy in the room line in a few posts, the most recent being "Fun With Enron Emails II (ENE, JPM)".

Here, Australia's The Global Mail swipes the line for what may end up being a milestone in the rotten history of the recent unpleasantness. First though a bit of backround from the Financial Times, Nov. 6, 2012:
Standard & Poor’s faces the prospect of further legal action in the Australian courts over the rating of risky structured products after a litigation specialist said it would back a class action lawsuit.

IMF Australia, a Sydney-based company that provides funding for legal claims, said it had agreed to support a claim against S&P over the rating of constant proportion debt obligation notes (CPDOs) that were created and sold by the wholesale banking arm of ABN Amro in 2006.

The action relates to the same securities that a Federal Court judge on Monday described as “grotesquely complicated” in a landmark ruling.

Justice Jayne Jagot found S&P had misled and deceived investors when it awarded its highest grade credit rating to CPDOs whose value collapsed in the run-up to the financial crisis.
ABN’s wholesale banking arm, which is now owned by Royal Bank of Scotland, was also found to have engaged in conduct that was misleading and deceptive....MORE
From The Global Mail:

The Smartest Girls in the Room

How an obscure Australian judge and hard-charging lawyer exposed the world’s best known ratings agency for misleading and deceiving investors.
Amanda Banton might have stepped off the set of the television show that entranced her when she was a kid growing up out on the scrub far west of Sydney; LA Law was a mid-1980s drama set in a legal firm, which probed the social and cultural ideologies of the time — racism, gay rights — overlaid with the conflicts posed by the surging appetites of the firm’s gilded partners for money, power and flesh....

...She was the architect of a class action that in September won a spectacular victory for 72 Australian local councils and community organisations — including a Queensland charity that helps disabled children — that had been suckered into investing in what turned out to be multi-million dollar financial time bombs sold by the now collapsed New York investment banking powerhouse Lehman Brothers. The investments blew up — along with Lehman’s — in the 2007 global Economic Meltdown and the council and community investors collectively did more than $200 million.

The Federal Court justice who heard the case, Steven Rares, found that Lehman’s had engaged in deceptive and misleading conduct and negligence when it effectively took the councils for financial patsies. The trial was the first in the world to examine the conduct of an investment bank in the creation and selling of the complex financial products known as collateralised debt obligations (CDOs), and has paved the way for the councils and charities to recoup $200 million in damages.

But a more impressive court victory for Banton was soon to follow in November — a triumph that would again startle the world’s financial markets, rock the international rating agencies and bring a diffident, offbeat and crack Sydney judge to the attention of the world’s financial press....MUCH MORE
HT: Longform