The saga of Florida’s “hanging chads”, which prolonged the disputatious US presidential race of 2000 well beyond polling day, also left corporate America hanging.
Standard and Poor's HQ. Image by Getty
The Australian court judgment against Standard & Poor’s for misleading investors in a complex, structured derivative is a worrying development for rating agencies that face growing legal risks.
The judge found S&P negligent in having accepted a false estimate of volatility given to it by ABN Amro, the issuing bank, and thus assigned the securities a triple-A rating in 2006. In practice, these securities collapsed in value within two years.
As Jayne Jagot, the judge in the case, ruled:
“S&P believed ABN Amro’s assertions that the actual average volatility of the Globoxx since inception was 15 per cent. S&P did not calculate the volatility for itself although it could easily have done so and, in my view, was required to do so as a reasonably competent ratings agency . . . This assumption as to volatility was unreasonably and unjustifiably low.”