Former client takes Oakvale to court

PROMINENT local advisory firm Oakvale Capital has dismissed suggestions it is at fault for the multi-million losses suffered by a former client, as the Perth firm is taken to court over a claim for close to $10 million.

Oakvale has received a writ from listed company Ceramic Fuel Cells regarding losses suffered in its portfolio of structured products badly affected by the credit crunch.

In a statement sent to WA Business News, Oakvale said its advice was within the terms of its obligations and policy guidelines approved by Ceramic.

"We consider this action by [Ceramic] to be blatant opportunism and clearly misdirected," Oakvale managing director Jim Cunningham said in the statement.

"We are confident that Oakvale acted as directed by [Ceramic] in relation to its investment portfolio."

The dispute centres on a collateralised debt obligation issued by Khamsin Credit Products, according to the statement of claim filed in the Federal Court.

A CDO is a bundle of loans or bonds designed to pay regular income, and repay capital when they mature. Synthetic CDOs, which some Oakvale clients hold, gain credit exposure through credit default swaps.

Ceramic is suing Oakvale for $8.2 million plus interest and costs, claiming its adviser misled Ceramic into altering its investment policy to allow the inclusion of CDOs, which it said were described as "very low risk" and an appropriate investment.

A Ceramic representative said further legal action in relation to other losses was also under consideration. The company sought legal help after writing down $25 million from its investment portfolio, with litigation funder IMF agreeing to back the claim.

Ceramic develops solid oxide fuel cell technology to produce low-emission electricity from natural gas and renewable fuels.

Oakvale has a list of commercial and public clients. Another Oakvale client, the City of Perth, lost $4 million after a CDO called Helium defaulted.

Mr Cunningham has previously said its clients were generally better off than other investors hit by the financial crisis, and that the firm was guided by the favourable ratings assigned to the CDOs.

Former council clients of Lehman Brothers Australia appear to have the greatest exposure to failing CDOs, with the City of Melville holding more than 20 of the complex products that have collapsed or lost considerable face value.