U.S. Credit Rating Agencies Win Dismissal of Lawsuits

The three major U.S. credit rating agencies won the termination of lawsuits wanting to hold them responsible as “underwriters” for assisting banking institutions structure securities transactions in order to achieve preferred ratings, Reuters reports.

The 2nd U.S. Circuit Court of Appeals in New York upheld the dismissal of three lawsuits against McGraw-Hill Co’s (MHP) Standard & Poor’s, Moody’s Corp’s (MCO) Moody’s Investors Service and Fimalac SA’s Fitch Ratings.

The class-action litigants, which included a group of unions, said they purchased $155 billion in mortgage pass-through certificates. They claimed the credit rating agencies generated misstatements and omissions in the certificates’ producing documents and therefore were liable.

Reuters: To qualify as an underwriter under section 77(b)(a)11 of the Securities Act of 1933, a “person must have participated, directly or indirectly, in the purchase of securities with a view toward distribution, or in the sale or offer of securities in connection with a distribution,” Judge Reena Raggi wrote for the three-judge panel.

The court additionally ruled that the lower court correctly disregarded the plaintiffs’ Section 11 claims considering that the rating agencies’ “alleged structuring or creation of securities was insufficient to demonstrate their involvement in the requisite distributional activities.”

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