Wingecarribee Shire Council has begun legal action against Lehman Brothers Australia (LBA) over investment losses stemming from the US sub-prime collapse.
Legal counsel for the parties appeared in the Federal Court in Sydney on Friday for the first proceedings in a $2.55 million lawsuit.
The court ordered LBA to file its defence against the statement of claim from southern New South Wales-based Wingecarribee Shire Council by March 20.
The council said it was left with 15 cents per dollar on its $3 million Federation Collateralised Debt Obligations (CDOs) investment with the asset manager.
CDOs are complex securities that have been invested in US sub-prime mortgages.
"This is a Lehman product and we believe they have behaved in a deceptive and misleading way in which (LBA) sold these Federation CDOs to us," Wingecarribee Shire Council managing director Mike Hyde told InvestorDaily.
"We believe it would have been apparent to (LBA) that it was not a wise product to sell to a council that had clearly stated to them that we needed capital-guaranteed products."
Manly Council is in discussions with two other councils over a possible class action against LBA, a Manly Council spokeswoman said.
"We are still taking advice on the matter (and) we are currently monitoring the Wingecarribee (Shire Council) case," she said.
Manly Council has $4.5 million invested with LBA, with $500,000 exposed to Federation CDOs.
LBA did not return InvestorDaily's calls.
LBA was rebranded from Grange Securities last December after being acquired by New York-based Lehman Brothers.
