Potential New Funding Options for Fitch Lawsuit

Amicus understands the Liquidators for Lehman Brothers Australia (LBA) is continuing to advance the formulation of its lawsuit against Fitch Ratings and is considering funding options. While it appears the LBA claim is sufficiently large to attract funding independently, Amicus anticipates any potential funder will likely want to engage with former holders of Fitch rated SCDO products who incurred losses.  This is both to increase the size of the potential claim and to broaden the base of plaintiffs.

In parallel the Banton Group continues to try to put together a group of former holders without LBA as the cornerstone complainant.  Banton Group has been attempting to assemble a sufficient volume of former holders to file a claim since its founding in 2020.  Amanda Banton, the group’s managing partner, and her team also tried to build this case or similar at her former employer Squire Patton Boggs (SPB) as per our article from June 2019.

In early December, the Banton Group circulated another note to former Fitch rated SCDO holders encouraging them to join its group by signing a litigation funding agreement.  Amicus has two concerns regarding former holders committing to the proposed funding agreement being:

  • When and if an alternative lawsuit emerges, it may offer better terms than the Banton lawsuit.  While it is currently unknown which lawsuit will offer former holders the better terms, it would seem prudent for former holders to wait and compare terms before deciding on the most appropriate group for them.
  • Given the Banton lawsuit has not been filed, there is no guarantee it will ever be filed if there are insufficient former holders within the group to attract a funder.  We see this as a significant concern as Banton Group and its predecessor SPB has been trying to form a sufficiently large group to file a claim for over two years now in which time their claim does not seem to have progressed.  The major concern is if the Banton claim is not progressed and former holders have signed a funding agreement that makes the former holders liable to pay the funder a percentage of any recoveries made regardless of whether the Banton lawsuit ever eventuates. The rationale as to why the funder is entitled to monies in these circumstances is that sometimes the mere threat of a lawsuit provokes the defendant into an out of court settlement without the need to formally file a claim and this is a standard term in most funding agreements to cover this situation.

In contrast to immediately signing up with the Banton Group, Amicus recommends former holders wait to see if the prospective LBA lawsuit is expanded to include former holders of the Fitch rated SCDOs. 

It seems to Amicus there is little urgency to sign up to the Banton lawsuit as there are few incentives for the Banton Group to close access to this lawsuit anytime soon given it has been open for over two years and the Banton Group appears to still be seeking additional plaintiffs and the case has still not been filed as yet.

We strongly encourage all former holders who purchased Fitch rated SCDOs to keep abreast of developments in these matters and when all the options available to them become clearer to make a decision only then.

Amicus would likely recommend former holders eventually sign up to one of the potential lawsuits if the funding agreements offered shielded them from any downside financial risk (caused by the case not being successful or being discontinued once started) in return for a share of any monies paid if the case is successful (either through court judgement or an out of court settlement) which is the basis of most funding agreements. However, all former holders should read the specific terms of any funding agreement carefully before committing themselves.

Please feel free to call or email Amicus (moray@amicusadvisory.com.au) if you have held any of the following Fitch rated SCDOs (Esperance, Newport, Kakadu, Henley, Coolangatta, Merimbula or Miami) and Amicus can keep you updated directly with any developments going forward.

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