In a victory for ratings agencies, a U.S. judge Tuesday dismissed claims against Moody’s Corp. and McGraw-Hill’s Standard & Poor’s in litigation over nearly $100 billion of Lehman Brothers Holdings Inc. mortgage-backed securities.
Investors had accused the agencies of serving conflicting roles by rating the mortgage-backed securities while helping to create and structure them. The decision could have an impact on similar litigation in other U.S. courts.
District Judge Lewis Kaplan dismissed the claims from the bench in his courtroom at the U.S. Court for the Southern District of New York. A written ruling is expected.
Kaplan’s rulings affect part of a consolidated lawsuit over as much as $96 billion in mortgage-backed securities, according to documents in the Manhattan federal court. Other defendants in the litigation include former Lehman executives such as Chief Executive Officer Richard Fuld.
Lehman sold the securites in a rapid success of 94 public offerings over 21 months ending in early 2007, according to court documents. Lehman collapsed in September 2008.
Lawsuits were brought against Lehman, the ratings agencies, and various individuals by the New Jersey Carpenters Health Fund, the Boilermakers-Blacksmith National Pension Trust and Mortgage Trust 2007-6.
“The judge has obviously agreed with the arguments that we made that the ratings agencies have never been held to be potential defendants under these provisions and it was a distortion of the statute to try to bring claims against the ratings agencies,” said Joshua Rubins of Satterlee Stephens Burke & Burke LLP, the law firm representing Moody’s.
McGraw-Hill Companies spokesman Steven Weiss said in a statement,”We are pleased that the judge granted our motion to dismiss in its entirety.
Judge Kaplan’s ruling also dismissed certain claims against individuals.
The case is Lehman Brothers Mortgage-Backed Securities Litigation, U.S. District Court for the Southern District of New York, No. 08-6762
(Reporting by Grant McCool. Editing by Robert MacMillan, Leslie Gevirtz)