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Judge Dismisses Lehman Suit with Ratings Agencies

Posted on 27 Jan 2010

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A federal judge on Tuesday dismissed claims against Moody's Investors Service and McGraw-Hill's Standard & Poor's in litigation over nearly $100 billion of Lehman Brothers 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, Reuters reports.

District Judge Lewis Kaplan dismissed the claims from the bench in his courtroom at federal district court for the Southern District of New York. A written ruling is expected.

Judge 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, like former chief executive Richard S. Fuld Jr.

Lehman sold the securities 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, who represented Moody’s.

McGraw-Hill 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.