A number of Australian councils may sue securities firm Lehman Brothers for more than just allegedly advising them to invest money in Federation Collateralised Debt Obligations (CDO).
The councils may take legal action against the investment bank on all the types of CDOs - Zircon, Beryl and Corsair - sold to them, Armidale Dumaresq Council (ADC) general manager Shane Burns told InvestorDaily.
Burns is in talks with Wingecarribee Shire Council's (WSC) lawyers for a potential class action and a change of plans in their case. WSC's lawyers initiated legal action against Lehman Brothers earlier this year.
"We are getting advice off the solicitors representing WSC in the case against Lehman Brothers in court. We are waiting for them to consider our options," Burns said.
ADC's initial reason for suing Lehman Brothers was the asset manager put $500,000 of the council's money into Federation CDOs for 40 years instead of the council policy of 10, he said.
WSC took $2.55 million losses in its $3 million Federation investment. The council has $29.8 million invested in other types of CDOs, on which it is facing a further $10.3 million loss, WSC's statements showed.
The move by ADC and WSC may spark support from other municipalities, including the City of Melville, Manly Council and Shoalhaven City Council, who also have millions invested with Lehman Brothers.
CDOs are complex structured investments, many of which are backed by loans from the now-collapsed United States sub-prime market.
