S&P found guilty of ‘deceiving’ and ‘misleading’ investors by Federal Court of Australia, awarded highest rating to a derivative that collapsed less than 2 yrs. later

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11/5/12, “S&P found guilty of misleading investors,” Financial Times, Neil Hume, via CNN

“Standard & Poor’s misled investors by awarding its highest rating to a complex derivative product that collapsed in value less than two years after it was created by ABN Amro’s wholsesale banking division, an Australian judge has ruled, in a landmark case that paves the way for legal action in Europe

In a damning verdict the Federal Court of Australia ruled S&P and ABN Amro had “deceived” and “misled” 12 local councils that bought triple-A rated constant proportion debt obligations (CPDOs) from an intermediary in 2006.

The court said a “reasonably competent” ratings agency could not have assigned the securities, which were described as “grotesquely complicated”, a triple A rating. S&P and ABN’s wholesale banking arm, which is now owned by RBS, also published information and statements that were either “false” or involved “negligent misrepresentations”, Justice Jayne Jagot found.

The 1,500-page ruling marks the first time a ratings agency has stood a full trial over a structured finance product. The decision will be closely studied by rival ratings agencies and also by investors and investment banks around the world.

“This is a major blow to the ratings agencies, which for years have had the benefit of profiting from the assignment of these ratings without ever being accountable to investors for those opinions,” said Amanda Banton, the lawyer representing the councils."...

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