Pension Loses Battle with Moody’s over Securities Misrepresentation

(August 26, 2013) —  A New York judge has dismissed a case brought by a large pension fund against ratings agency Moody’s over claims it misrepresented the creditworthiness of securities, and thereby harmed investments.

Judge George Daniels, presiding over the Southern District Court of New York, closed the case on Friday finding in favour of the defendant.

The judge dismissed several of the plaintiffs’ claims, including citing a US senator who had said ratings agencies should shoulder some of the blame for the financial crisis, saying investors had other opportunities to investigate securities before purchasing or selling them.

Judge Daniels found that the plaintiffs did not provide sufficient evidence to prove their case against Moody’s. The court document said: “To satisfy the reliance element of a Section 10(b) securities fraud claim, a plaintiff must demonstrate that ‘but for the claimed misrepresentations or omissions, the plaintiff would not have entered into the detrimental securities transaction.’” He cited the case Lentell v. Merrill Lynch & Co from 2005.

The plaintiffs failed to convince the judge through a string of legal measures, Judge Daniels said adding that Teamsters Local 282 had “recycled” the argument it was told to strengthen at a previous hearing if it were to find any further recourse against the defendant.

Moody’s had previously proved that its recommendations had not provoked a price move of a security.

At the class certification stage of the case, the court had found “that this is a case that is primarily built around misrepresentations, and omissions, if any merely serve to exacerbate and bolster [plaintiffs’’] misrepresentation claims…Plaintiffs proffer no evidence for the court to alter its earlier decision.”

However, the judge reported “In light of the great lengths to which Moody’s has gone to tout its independence and integrity, it is inconsistent for Moody’s to simultaneously argue that a reasonable invest would not find such statements to be material. Moody’s thus fails to demonstrate that no reasonable jury could find the alleged misrepresentations at is sot be material.”

In February, Standard & Poor’s announced the federal government had joined the long line of pension funds to have sued a ratings agency over misrepresentation of risk during the financial crisis.

The company said the Department of Justice had filed a civil case against it in the federal court of Los Angeles, accusing it of inflating the ratings of mortgage investments and setting them up for a crash.

The case had been filed by Teamsters Local 282 Pension Trust Fund in September 2007 as lead plaintiffs in a class action suit. Later that year, a similar case filed by Teamsters Local 282 in Illinois was consolidated into the New York filing and a new case was submitted in early 2009. A legal battle then ensued with a list of judges finding in favour of each side, which led to the final hearing this month. The case was finally submitted by Teamsters Local 282 on an individual basis.  

Judge Daniels called for the case to be closed. To access the document, click here.

Moody’s had not returned requests for comment by press time.

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