MELBOURNE Dec 24 Litigation funder IMF
Australia said it will back lawsuits in Europe related
to billions of dollars worth of toxic derivatives created by ABN
AMRO Bank N.V. and rated triple-A by Standard and Poor's after
winning a similar case in Australia.
IMF Australia said in a statement it had set up a foundation
based in The Hague to pursue claims from investors who bought
CPDOs, or constant proportion debt obligations - credit
derivatives created by the Dutch bank and stamped with S&P's
highest rating. ABN AMRO Bank N.V. is now owned by Royal Bank of
IMF Australia managing director Hugh McLernon told Fairfax
Media the foundation was the equivalent of a class action in the
"We'll proceed with hundreds of millions of dollars, but we
are looking for much more than that," McLernon said.
"We've got the funds and we've got the appetite for a
S&P and RBS were not immediately available for comment.
In a landmark judgement issued last month, Australia's
Federal court found S&P had deceived 12 local government
councils that bought the CPDOs, saying they should never have
been given a triple-A rating.
The Australian judgement, which awarded A$30 million ($31
million) in costs and damages to the councils after the notes
lost almost all of their value within six months, has been seen
as setting a precedent for future litigation around the world.
The Australian case marked the first time a ratings agency
had faced trial over the complex financial products widely cited
as one of the factors that triggered the global financial
LITIGATION FUNDING SPOTLIGHT
The case has also shone the spotlight on the rapid growth of
litigation finance, which in recent years has sparked a number
of start-up investment companies competing to fund large-scale
commercial lawsuits in countries including Australia, Britain
and the United States.
Litigation funders such as UK-listed Juridica Investments
Ltd and Burford Capital Ltd provide financing
for lawsuits in exchange for a share of any settlement or
judgment, and have been involved in cases against Chevron Corp
and Apple Inc among others. If the litigant
loses, it does not have to repay the financial investor.
Sydney-based IMF, which made A$8 million from the Australian
Federal court case against ABN and S&P, has been credited for
pioneering the industry in Australia, where a favourable
regulatory environment and a number of high-claim class actions
have proved highly profitable in recent years.
IMF made a record net profit of A$43 million from A$71
million of revenue for the 2011-12 financial year, up 88 percent
on the previous year, on the back of a successful class action
against shopping mall owner Centro Properties.
As an alternative asset class not correlated to market
trends or other financial investments like commodities or bonds,
litigation financing has been seen as an attractive option for
"The current environment is very favourable for litigation
funding, which is set to benefit both specifically from an
increase in litigation in the aftermath of the global financial
crisis and more generally from the growth that is likely to
follow as an immature industry continues to expand," Anthony
Swan, a portfolio manager at Acorn Capital, IMF's largest
shareholder, told Reuters.
IMF opened Bentham Capital in New York last year, looking to
tap into the U.S. market where the growth of litigation funders
in recent years has alarmed business lobby groups, who have
criticised the industry as coercive and disruptive to businesses
and called on lawmakers to regulate the industry more tightly.
Bentham Capital had made two funding investments, one less
than targeted in its first year of operation.
"We've found a lot of pitfalls in the American litigation
system that we weren't aware of until we educated ourselves so
the first year has been pretty careful, but it's going in
general terms in accordance with our expectation," McLernon told
"The one thing we do believe is that litigation funding
companies need to have an international operation. National
operations will find it difficult to get enough cases in to fund
unless they take more and more risks."