Investors to hold rating agency and bank to account for financial crisis damages in new legal claim


European investors are taking joint action in suing The Royal Bank of Scotland (RBS) and Rating Agency Standard & Poor’s (S&P) in The Netherlands for damages suffered on investments in complex financial products known as CPDOs. This landmark case is the first group action of its kind in Europe for damages brought against a major investment bank and a ratings agency for conduct in the years leading up to the financial crisis. The group alleges that S&P negligently assigned the highest AAA rating to CPDOs, while heavily relying on misinformation supplied by RBS, the legal successor of the Dutch bank ABN Amro. 

The case was filed on 4 December 2013 in the District Court of Amsterdam by Stichting Ratings Redress, a Dutch foundation funded by Australian-based litigation funder, Bentham IMF Limited, and currently representing 16 claimants with an aggregate claim value of around USD250m (and an aggregate investment amount of USD365m). The number of claims and aggregate amount may increase. The foundation, represented by Dutch law firm BarentsKrans NV, is acting on behalf of investors from Germany, Austria and Switzerland in the damages claim against RBS and S&P. 

The action follows a ruling in the Australian Federal Court in November last year in favour of 12 local authorities that had sought damages from ABN AMRO (now RBS) and S&P for losses caused by similar AAA-rated CPDOs sold to them prior to the Global Financial Crisis (GFC). Many of the facts and arguments established in that successful Australian claim, also backed by Bentham IMF, are relevant to the action filed by Stichting Ratings Redress.

Bentham IMF will oppose proceedings instituted by Standard and Poor’s in the High Court in London seeking to have the Stichting Ratings Redress litigation conducted in that Court. 

John Walker, Executive Director of Bentham IMF, one of the world’s largest litigation funders and the company underwriting the Dutch claim, said: “Rating agencies, by conferring AAA ratings on products they knew were incapable of accurate assessment, were a material cause of the mispricing of risk and misallocation of capital in global debt markets that became dysfunctional in 2007, heralding the GFC. Ratings were used then by investment banks to depict sows’ ears as silk purses. This action seeks to hold banks and rating agencies to account for their conduct prior to the GFC.” 

London-based distressed asset specialist Fideres Partners LLP has been retained by Bentham IMF Ltd to identify and coordinate the affected institutional investors and to assist in gathering the complex information needed to support Dutch law firm BarentsKrans NV.

Steffen Hennig, lead partner on the case at Fideres said: “This is a landmark case in many respects. It’s the first time that a group action on structured products is brought in a European court by institutional investors. It is also the first time that a European court has been asked to take a stand on the responsibility of a Rating Agency for losses incurred on toxic financial products which received the highest credit ratings.”

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