Tweed Shire Council is one of five councils across NSW set to launch lawsuits against a financial advisory firm which has collapsed into administration with around $3.5 billion in funds under management.
Three of the lawsuits are reportedly seeking collective damages of more than $10 million over advice given on investments in collateralised debt obligations (CDOs), the controversial investment vehicles popular in the mid-2000s and blamed in part for triggering the global financial crisis.
The firm, Oakvale Treasury, was placed in administration on July 23, with Ferrier Hodgson appointed, according to a report by the business newsletter SmartCompany.
Tweed Council’s acting general manager Troy Green told Echonetdaily that council had been trying to mediate with the firm for the past six months over the failed investments.
Mr Green did not disclose the exact amount owed to council, only that it represented the lost ‘opportunity’, or interest foregone, on a $2 million investment with Oakvale.
He said that from the perspective of council’s $160 million investment portfolio, the loss was ‘pretty small’, compared to the four other big councils which appeared to have each lost millions of dollars each.
But he said, ‘any loss of public money is unacceptable and we’ll pursue it to get the right outcome for the community.’
Mr Green said he would soon provide a full report on the issue for councillors and the public.
He said that now the firm was in voluntary administration, Council was considering options to recover funds.
Tweed Council has joined with four of the biggest city councils in NSW: Woollahra, Penrith, Liverpool and Wollongong in the recovery action.
SmartCompany‘s deputy editor Patrick Stafford in his report said it was unknown whether the lawsuits were the main cause of the administration, but it’s believed to have sparked the drastic action.
The report said Australian Securities and Investments Commission head Greg Medcraft recently said complex instruments such as CDOs are ‘difficult to understand’ and can cause investor confusion.
Oakvale Treasury has operated for more than 20 years in Perth, beginning as an interest rate risk management service. By 1993, the company had 30 clients and $3 billion of exposures under advisory.
Mr Stafford said some of its clients include book chain Dymocks, along with several resource companies including Centennial Coal and Mount Gibson Iron. Adelaide Airport and Insurance Australia Group are also listed as clients.
‘Financial advice firms have had their share of troubles this year. In April, the Australian Financial Services group, which had $6 billion in funds under management, also collapsed,’ he said.
Mr Green said Oakvale had provided the advice to Tweed Council in 2006-2008 for a CDO investment called ‘Helium 69’.
‘As per council’s investments reports at the time, Helium 69 was rolled into Argon, a zero coupon bond which matures in 2018,’ he told Echonetdaily.
‘Essentially Tweed has lost the opportunity on the investment. Council decided to seek mediation for the lost opportunity after the successful court case by Piper Alderman against Lehman Brothers, formerly Grange Securities.
‘Council joined with Woollahra, Penrith, Liverpool and Wollongong. Liverpool and Wollongong filed earlier due to dates and statute of limitations.’