Teamsters Suit Charges Moody's Overrated Subprime-Mortgage Bonds

Filing the suit was the International Brotherhood of Teamsters Local 282 Pension Fund, which claimed that Moody’s role in classifying the subprime loan securities ended up hurting the agency’s share price as the domestic housing sector crashed – which analysts said was in large measure driven by the subprime mortgage crisis, Reuters reported.

“Moody’s maintained its excessively high ratings, rather than downgrade the bonds to reflect the true risk of owning subprime mortgage-backed debt instruments,” the suit alleged. The complaint, which also names Moody’s chief financial officer, Linda Huber as a defendant, is seeking class action status.

A Moody’s spokeswoman declined to comment to Reuters, saying the company had not yet had a chance to review the lawsuit. Huber was not immediately available to comment, the spokeswoman told Reuters.

The suit claims Moody’s and Huber knew or “recklessly disregarded” non-public information about how its ratings of the subprime loan securities would affect its financial results and stock price, according to the news report. Moody’s shares are down more than 25% on a year-to-date basis .