Lawsuits Against S&P and Moody’s Dismissed

May 5, 2010 by · Leave a Comment
Filed under: The Rating Agencies 

The lawsuit brought against Standard & Poor and Moody’s for defrauding investors who relied on their ratings before buying $63 billion of investment-grade mortgage-backed securities was dismissed.

U.S. District Judge Jed Rakoff in New York also dismissed claims against JPMorgan Chase & Co., Bank of America Corp.’s Merrill Lynch and ABN Amro Bank NV, a unit of Royal Bank of Scotland Plc, in a lawsuit filed by institutional investors.

The banks and rating companies had been accused of issuing half-truths and complete omissions in registration statements and prospectuses for 84 offerings sold as safe. In a two-page order, Rakoff threw out claims against McGraw-Hill, Moody’s, Merrill Lynch Mortgage Lending, First Franklin Financial Corp. and Credit-Based Asset Servicing & Securitization LLC (C-Bass).

S&P and Moody’s face investor lawsuits for rating mortgage bonds too high and maintaining the inflated ratings months after home-loan defaults surged in 2007.

The wave of downgraded MBS was caused by applying a ratings system designed for a single-obligor world, to multi-obligor securities. Dismissal was appropriate.

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