Rating Agencies Must Defend AAA Junk in Court

I suspect we are FINALLY seeing the beginning of the endgame for the rating agencies.

“A U.S. judge refused to dismiss a lawsuit against Moody’s Investors Service Inc. and Standard & Poor’s, rejecting arguments that investors can’t sue over deceptive ratings of private-placement notes because those opinions are protected by free-speech rights.

U.S. District Judge Shira Scheindlin in New York rejected the ratings firms’ arguments yesterday, leaving them and Morgan Stanley to defend against fraud charges in a class-action lawsuit that alleges they hid the risks of an investment linked to subprime mortgages. The ruling may affect Fitch Group Inc. and other credit raters that have made similar arguments after investors lost money following their advice on subprime and other asset-backed investments.

Scheindlin said in her ruling that the First Amendment of the U.S. Constitution doesn’t apply in the case because the rating firms’ comments were distributed to a select group of investors and not to the general public.”

Whether there will be a misguided reprieve from the defenders of the status quo is beyond my wildest guess.


Ratings Firms Lose Free-Speech Bid to Dismiss Lawsuit
Joel Rosenblatt and David Glovin
Bloomberg, Sept. 3 2009

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