Judge Dismisses Ratings Agency Lawsuit

January 29, 2010 (PLANSPONSOR.com)–A federal judge in New York has thrown out a lawsuit by two pension funds against the major U.S. financial ratings agencies over the agencies’ role in Lehman Brothers’ sale of billions of dollars in mortgage-backed securities.

Reuters reported that U.S. District Judge Lewis Kaplan of the U.S. Court for the Southern District of New York dismissed the claims against Moody’s Corp. and McGraw-Hill’s Standard & Poor’s, and that Kaplan’s written ruling is expected later. Kaplan agreed with Moody's and S&P that they are not liable under the Securities Act of 1933 as either underwriters or sellers

According to Reuters, investors had accused the ratings firms of conflicts of interest in rating nearly $100 billion of the mortgage-backed securities while, at the same time, helping to create and structure them.

Kaplan's rulings affect part of a consolidated lawsuit over as much as $96 billion in mortgage-backed securities, according to Reuters. Lehman sold the securites in a series of 94 public offerings over 21 months ending in early 2007, according to court documents. Lehman collapsed in September 2008.

The cases involved in Kaplan’s ruling were filed by the New Jersey Carpenters Health Fund, the Boilermakers-Blacksmith National Pension Trust and Mortgage Trust 2007-6. The two ratings agencies, as well as Fitch Ratings, are facing similar charges in lawsuits brought by public pension funds (see Credit Rating Agencies Face Second Lawsuit by Public Pension Fund).

The case is Lehman Brothers Mortgage-Backed Securities Litigation, U.S. District Court for the Southern District of New York, No. 08-6762.

Fred Schneyer
editors@plansponsor.com