Rating agencies lose key free-speech claim

Source: Reuters


NEW YORK (Reuters) - Credit rating agencies may find it harder to argue that their opinions deserve free speech protection after a judge rejected efforts by Moody's Investors Service and Standard & Poor's to dismiss a fraud lawsuit.

In a case alleging that inflated ratings on risky mortgages led to investment losses, U.S. District Judge Shira Scheindlin on Wednesday said ratings on notes sold privately to a group of investors were not "matters of public concern" deserving broad protection under the First Amendment of the U.S. Constitution.

The Manhattan judge said investors may pursue their lawsuit accusing Moody's, S&P and Morgan Stanley (MS.N), which marketed the notes, of issuing false and misleading statements about the notes, which were backed by subprime mortgages and other debt.

Scheindlin's ruling may affect lawsuits by pension funds -- including the nation's largest, the California Public Employees' Retirement System, or CalPERS -- and other investors that want to hold banks and rating agencies responsible for exaggerating the value and safety of debt in order to win fees.

"This is potentially a very significant opinion," said Joseph Mason, a finance professor at Louisiana State University's business school in Baton Rouge.

"It seems they have found a hole in the First Amendment defense, the agencies' primary line of defense," he said. "There is a feeling throughout the investment industry that agencies committed an egregious breach, but the issue is how to gain traction under the law. This opinion seems to give hope."

Rating agencies typically get broad free-speech protection similar to that afforded journalists, and plaintiffs must often show that ratings reflect "actual malice" before they can recover. That protection, of course, is not absolute.

"The First Amendment doesn't allow anyone to commit fraud," said George Cohen, a professor at the University of Virginia School of Law.

Sean Egan, managing director of Egan-Jones Ratings Co, an independent agency critical of how rivals are compensated, called Scheindlin's ruling "a watershed event. This is the first major breach in the First Amendment defense, and makes it substantially easier for other plaintiffs."


Read more: http://www.reuters.com/article/reutersEdge/idUSTRE5824KN20090903

How about Madoff's financial statments?

Come on, people.

"My 1040A is about the optimism inherent in the human spirit..."

:rofl:

Not only that. The rating agencies have no duty of due diligence. Their opinions need not be based on objective facts (like balance sheets, sufficient capitalization, etc.). It's truly a racket.

enough is enough

Instead of They The Coporate Persona they currently ignore us to serve.

Then they could just shut us out altogether.

and I'm not sure they'd be able to pull it off.

They'll attach it to the you're all dead if this doesn't pass Act. They might even attach it to the you're all rich if this passes Act. But either way corporations gaining the right to vote will be the least of your worries.

beginning nor end. I am ver going anywhere, and know too many who feel the same.