{"id":5109,"date":"2010-12-30T00:00:00","date_gmt":"2010-12-30T06:00:00","guid":{"rendered":"https:\/\/institutionalinvestorsecuritiesblog.blawgcloud.com\/2010\/12\/moodys_fitch_and_standard_and"},"modified":"2022-04-14T14:23:46","modified_gmt":"2022-04-14T19:23:46","slug":"moodys-fitch-and-standard-and","status":"publish","type":"post","link":"https:\/\/www.investorlawyers.com\/blog\/moodys-fitch-and-standard-and\/","title":{"rendered":"Moody\u2019s, Fitch, and Standard and Poor\u2019s Were Exercising Their 1st Amendment Rights When They Gave Inaccurate Subprime Ratings to SIVs, Says Court"},"content":{"rendered":"

According to California Superior Court Judge Richard Kramer Fitch Inc., Standard and Poor\u2019s parent (MHP) McGraw-Hill Companies Inc., Fitch, Inc., and Moody’s Corp. (MCO), were merely exercising their First Amendment right to free speech when they gave their highest rating to three structured investment vehicles (SIVs) that collapsed when the mortgage market failed in 2008 and 2007. The ruling, in California Public Employees’ Retirement System v. Moody’s Corp.<\/em> now leaves the plaintiffs with a steep burden of proof. The plaintiff, the largest pension fund in the US, is seeking more than $1 billion in securities fraud<\/a> damages stemming from the inaccurate subprime ratings.<\/p>\n

Per the securities complaint, CAlPERS is accusing the defendants of publishing ratings that were \u201cunreasonably high\u201d and \u201cwildly inaccurate\u201d and applying \u201cseriously flawed\u201d methods in an \u201cincompetent\u201d manner. The plaintiff contends that the high ratings that were given to the SIVs contributed to their collapse during the economic crisis.<\/p>\n

BNA was able to get court transcripts that indicate that the ruling came on a motion under California\u2019s anti- Strategic Lawsuit Against Public Participation (SLAPP) statute, which offers a special procedure to strike a complaint involving the rights of free speech and petition. If a defendant persuades the court that the cause of action came from a protected activity, the plaintiff must prove that the claims deserve additional consideration. Now CalPERS must show a \u201cprobability of prevailing.\u201d<\/p>\n

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, there is no longer any protection from private litigation for ratings agency misstatements. Now, an investor only has to prove gross negligence to win the case. However, per Wayne State University Law School Peter Henning, in BNA Securities Daily<\/em>, Dodd-Frank\u2019s provision may not carry much weight if a ratings agency\u2019s First Amendment rights are widely interpreted.<\/p>\n

Shepherd Smith Edwards & Kantas LTD LLP Founder and Stockbroker fraud lawyer William Shepherd<\/a> had this to say: \u201cThere have long been many restrictions on ‘speech,’ including life threats, trademarks, defamation, conspiracy, treason and threats of blackmail. But the age-old standard restriction is ‘you can\u2019t shout fire in a crowded theater.’ The reason is that strangers might rely on the words and be injured by your ‘speech.’ How is this different than shouting ‘AAA- rated,’ knowing that strangers will rely on the words and be harmed by this ‘speech?’ The difference is that Wall Street can say anything it wants, while the rest of us have to just sit down and shut up.”<\/p>\n

CalPERS has until March 18, 2011 to respond to the court.<\/p>\n

Related Web Resources:<\/strong>
\nRatings by Moody\u2019s, Fitch, S&P Ruled to Be Protected Speech<\/a>, BusinessWeek, December 11, 2010<\/p>\n

Calpers Sues Rating Companies Over $1 Billion Loss<\/a>, Bloomberg, July 15, 2010<\/p>\n

CalPERS <\/a><\/p>\n

California Public Employees’ Retirement System v. Moody’s Corp.<\/a>, Justia Dockets<\/p>\n

Credit Ratings Agencies<\/a>, Stockbroker Fraud Blog<\/p>\n

Continue Reading \u203a<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

According to California Superior Court Judge Richard Kramer Fitch Inc., Standard and Poor\u2019s parent (MHP) McGraw-Hill Companies Inc., Fitch, Inc., and Moody’s Corp. (MCO), were merely exercising their First Amendment right to free speech when they gave their highest rating to three structured investment vehicles (SIVs) that collapsed when the mortgage market failed in 2008 […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[3845,3881,3882,3883,3894,3864],"tags":[],"class_list":["post-5109","post","type-post","status-publish","format-standard","hentry","category-credit-rating-agencies","category-fitch","category-moodys","category-standard-and-poors","category-structured-products","category-subprime-mortgage"],"yoast_head":"\nMoody\u2019s, Fitch, and Standard and Poor\u2019s Were Exercising Their 1st Amendment Rights When They Gave Inaccurate Subprime Ratings to SIVs, Says Court — Investor Lawyers Blog — December 30, 2010<\/title>\n<meta name=\"description\" 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