German Court Allows Investors to Sue S&P over Lehman Insolvency

January 18, 2013

Germany’s Federal Court of Justice has ruled that investors can sue Standard & Poor’s for failing to adequately reflect the deteriorating financial health of Lehman Brothers in its rating assessment shortly before the bank became insolvent.

The court admitted a case brought by Juergen Hillebrand, a German pensioner who bought a Lehman investment note called an “Alpha Express Zertifikat,” a product whose performance was tied to Lehman’s credit risk, his lawyer Jens-Peter Gieschen at law firm KWAG in Bremen, Germany, said on Thursday.

It’s the first time a German court has admitted a case brought by retail investors against rating agencies, potentially opening the door to further claims.

S&P, part of McGraw-Hill Cos Inc, failed in its duty to make a credible ratings assessment because the notes were given a good score only days before the Lehman insolvency in September 2008, Gieschen said.

A spokeswoman for S&P in Germany said: “We believe that these claims are without merit.”

One of the reasons Hillebrand bought €30,000 ($40,100) worth of the Lehman notes in May 2008 was the fact that they were rated ‘A+’, giving him the impression it was a conservative investment, Gieschen said.

Nikolaus Boemcke, a Munich-based attorney specialized in capital markets litigation with law firm Roessner, said: “With this decision the court has opened a new way to help Lehman victims.”

The Federal Court decision dates from Dec. 13, 2012 and was communicated to Hillebrand on Jan. 14, Gieschen said.

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