LGFS were ordered to pay one third of the damages over the selling of a complex financial product known as "Rembrandt notes".
About $45 million of Rembrandt was placed with LGFS, which sold around $18.5 million to the councils as Rembrandt 2006-3 Community Income CPDO Notes.
Investment bank ABN Amro was also found liable for creating the product and Standards and Poor's (S&P) for giving it an "AAA" rating.
Both companies will pay out the remainder of the damages to the council group.
In a statement LGFS said the result was a "highly satisfactory" as it saw the company paying only 33.5 per cent of the damages.
"While the NSW councils were successful in their claim against LGFS, ABN Amro and S&P, the judge also ruled that the amount payable by LGFS will be fully covered by its insurer," LGFS said in a statement.
LGFS also won a cross claim worth more than $15 million against ABN Amro and S&P for the damages it occurred when it sold a cache of Rembrandt notes to its parent company after the downgrading of the notes by S&P.
"We have succeeded in entirety our claim against ABN Amro and S&P" LGFS said. "This is a very positive result."
