Agencies Must Face Suits

May 18, 2012 by · Leave a Comment
Filed under: General 

U.S. District Judge Shira Scheindlin has ruled to allow suits filed by King County, Washington, and Iowa Student Loan Liquidity Corp to proceed. They had invested in two vehicles, named Rhinebridge and Cheyne, that they complained the rating agencies, Fitch, Standard & Poor’s, and Moody’s collaborated in structuring and then gave a falsely high rating.

The investors had sued the defendants for negligence, negligent misrepresentation, breach of fiduciary duty, and aiding and abetting. Scheindlin allowed the plaintiffs to proceed with the negligent misrepresentation claims and dismissed the other three complaints.

In her opinion supporting her decision regarding Rhinebridge she wrote, “Plaintiffs have sufficiently alleged that the rating agencies possessed unique or specialized expertise, and that the rating agencies knew and intended that their ratings would be used by investors in deciding whether or not to invest in Rhinebridge.”

Scheindlin continued citing the investors’ complaint. “Regardless of their historical roles, the rating agencies did not merely provide ratings; rather, they were deeply entrenched in the creation and operation of Rhinebridge.”

This is a bad decision. What happened to the investors’ burden of due diligence? How can there be a breach of an opinion? Isn’t anyone responsible for their own decisions?

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