Moody’s and Standard and Poor’s lost its motion to dismiss in US District Court for the Southern District of New York on Friday in their attempts to dismiss investor fraud lawsuits that claim the ratings agencies inflated their ratings to notes sold by Margin Stanley and which were backed by subprime mortgages, leading to horrendous investor losses.
A motion to dismiss doesn’t prove anything, but what it does is show that there’s a claim that appears to be good if what’s claimed is assumed to be true – many times the circumstances or situation doesn’t rise to the level of a legal claim even if what’s asserted is assumed true, so a motion to dismiss essentially asks the judge to evaluate the case with that context in mind. Here, it appears the investors submitted ample proof to show that the ratings given by the companies may indeed have aided banksters in pulling off fraud by writing up bogus reports that merely rubber stamped banker selling pitches.
The suit was originally filed in 2008 and include institutional investors Abu Dhabi Commercial Bank and King County of the State of Washington. All investors claim Morgan Stanley pressured the rating agencies to give false investment grade rating to notes the bank was selling.
“We’re pleased that the court, after examining the evidence, has recognized the value of our fraud claims against Morgan Stanley and the rating agencies,” said Daniel Drosman, a lawyer with the firm Robbins Geller Rudman & Dowd LLP who represents the investors.
In response, the ratings agencies answered via e-mail:
“We are pleased that the court dismissed several claims against Standard & Poor’s,” a spokesman for that firm, Edward Sweeney, said. “Importantly, the court is also requiring the plaintiffs to show cause why their negligent misrepresentation claims should not be dismissed based upon a recent favorable ruling of the Court of Appeals.” (NOTE: In lawsuits, you usually pack several theories when you sue, so a fraud claim will have say, 5 claims outside of fraud in a lawsuit alleged against a defendant – so for example, breach of contract and breach of fiduciary duty are additional claims from one action. Here, the ratings agencies had claims dismissed that didn’t exactly fit the elements of that claim, and hence, that claim was dismissed – it’s technically a victory but the underlying fraud claim is really not gone, so this is just a lawyer earning his billable hours).
The case info is: Abu Dhabi Commercial Bank v. Morgan Stanley & Co., 08-CV-7508 (SDNY).
Source story is HERE.
What a perfect time to announce progress on a litigation that’s several years old and that isn’t even ready for trial. We all know that the ratings agencies were in bed with the snake oil salesmen on Wall Street, but now it has to be proven in a lawsuit, and with armies of lawyers adjourning and cross motioning and calling for special conferences, etc. aka delaying the case til it disappears like a wallflower, it goes to show how difficult it is to bring down SkyNet.
My instincts tells me this settles, but a sufficient carrot has to be dangled so that the plaintiffs lawyers can proclaim some sort of victory out of this. Regardless of the outcome, the truth is now known, and the only thing this case can do is affirm the fraudulent nature of Wall Street by either resulting in a plaintiff’s victory or in a toothless settlement where neither side admits or denies liability or fault and a bribe cash amount is paid.