Wingecarribee Shire Council began legal proceedings on Thursday against Lehman Brothers’ Australian unit over the sale of collateralised debt obligations that have suffered losses in the credit squeeze.

Wingecarribee, near Sydney, claims Grange Securities, now Lehman Brothers Australia, failed to act inthe council’s best interests and engaged in misleading and deceptive conduct while serving as its financial adviser and investment manager by promoting the Lehman-originated Federation CDO, which was exposed to the US subprime market.