The two major credit-rating firms settled a highly anticipated lawsuit on Friday, avoiding what would have been their first jury trial over crisis-era ratings.
Fourteen plaintiffs, led by Abu Dhabi Commercial Bank and King County, Washington, settled with Standard & Poor's Ratings Services and Moody's Investors Service, according to a court filing Friday evening in the U.S. District Court in the Southern District of New York.
The plaintiffs also settled with Morgan Stanley.
Abu Dhabi Commercial Bank and other investors claimed in lawsuits filed in 2008 and 2009 that the defendants misled them by allegedly inflating ratings on two so-called structured investment vehicles they purchased-known as Cheyne and Rhinebridge.
Each of the parties involved said the settlement terms were confidential.
Friday's agreement is particularly significant for S&P as it removes a major legal hurdle for the company. The McGraw- Hill Cos. unit is confronting a slew of lawsuits.
The Justice Department sued S&P alleging fraud on Feb. 4, alleging the company triggered billions of dollars in losses for federally insured banks and credit unions by allegedly misrepresenting its ratings as independent and objective before the financial crisis. Eighteen state attorneys general have also sued S&P, claiming the firm violated state consumer-protection laws by allegedly putting its desire for profits over analytical quality. S&P has said the suits are "meritless."
The Abu Dhabi case was a high-stakes trial for S&P in particular, lawyers have said. A guilty verdict by a jury could have weakened some of the company's legal arguments in its battle with state and federal prosecutors.
Also, the trial would have been a public airing of many of the same issues at the heart of the Justice Department's lawsuit--the allegedly shoddy ratings the company issued in a bid to drum up business in the years before the financial crisis.
In a statement, a McGraw-Hill spokesman said the company settled the Abu Dhabi case "without any admission of liability or wrongdoing."
A Moody's spokesman said: "This settlement allows us to put the significant legal defense and related costs, as well as the distraction, of these very protracted litigations behind us. We are satisfied that it is in the best interests of our company and shareholders."
A Morgan Stanley spokesman said: "We are pleased to have settled these cases."
The trial had been set for May 13 in New York. The plaintiffs had amassed thousands of pages of documents, detailing email exchanges among credit-rating analysts and Morgan Stanley bankers.