National law firm Piper Alderman, led by partner Amanda Banton, represents the applicants.

The applicants presented a full account of the advisory investment relationship existing between the councils and Lehman Brothers Australia, formerly Grange Securities. Lehman purchased the investment firm in March 2007.

Evidence brought on behalf of the applicants included testimonies from several council employees along with extensive documents relating to the way collateralised debt obligations (CDOs) and other synthetic structured products were sold.

After the applicant’s evidence on the methods by which the CDOs were recommended, marketed and sold Lehman decided not to call any lay witnesses in its defence to counter the evidence of the councils regarding the conduct of Lehmans and the representations made, Piper Alderman said in a statement.

Piper Alderman’s success in gaining access to Lehman documents revealing details of an internal investigation into the conduct of sales staff as they marketed financial products including CDOs was important to the applicant’s case, the firm said. Lehman argued that these emails were privileged and confidential.

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Justice Yates of the Federal Court of Australia found that professional privilege had not attached to the documents and ordered their production.

An expert for the applicant’s case provided the Court with an interpretation of one of these crucial emails, which read “Below are some switch ideas based on our axes both on and off the book. As we control the CDO market we should be able to execute any of these without issue.”

The expert told the Court that “axes” are a trader’s priorities and that “a switch idea” based on Lehman’s axes, would be based on their desire to add or to shed risk.

Another marketing tool used at the point of sale, as alleged by the councils, was to explain that the products could be bought and sold at any time.

“It was particularly important to many of my clients that they could sell at any time and without penalty as they had uncertain liquidity requirements,” said Banton.

An expert conceded that the products were “buy and hold to maturity” products. The applicants allege that at the time they were investing in these CDOs, it was represented by Lehman that there was an active secondary market for these products.

A liquidity expert called by Lehman said that this was not the case. “I don’t believe that [the trades] are representative of any kind of normal market activity or normal arms-length activity between a customer and a broker or a customer and a fiduciary.”

The trial is now to be adjourned for one month, resuming on 30 May 2011 for one week.

Piper Alderman’s Banton said: “We are very pleased with the outcome of the case to date.”