UPDATE 1-Moody's, S&P settle lawsuits over debt vehicle ratings

Fri Apr 26, 2013 7:07pm EDT

* Rating agencies, Morgan Stanley reach settlements

* Investors said to lose money on structured investments

By Nate Raymond and Jonathan Stempel

NEW YORK, April 26 (Reuters) - Settlements have been reached in two long-running lawsuits seeking to hold Moody's Investors Service and Standard & Poor's responsible for misleading investors about the safety of risky debt vehicles that they rated.

The lawsuits had accused Moody's, a unit of Moody's Corp , and S&P, a unit of McGraw-Hill Cos, of negligent misrepresentation over their activities regarding the Cheyne and Rhinebridge structured investment vehicles (SIVs).

Morgan Stanley, which marketed both SIVs and helped structure the Rhinebridge SIV, also settled. Both cases were dismissed with prejudice. Settlement terms were not disclosed.

Spokesmen for McGraw-Hill and Morgan Stanley confirmed the settlements, as did a person familiar with the Moody's settlement. Moody's did not respond to requests for comment.

A trial in the Cheyne case had been scheduled for May 6.

In both cases, investors accused the rating agencies of collaborating with the banks in arranging for SIVs to receive ratings as high as "triple-A," even though much of the underlying collateral was low-quality or subprime mortgage debt.

The Abu Dhabi Commercial Bank, King County in Washington state, and other investors sought $638 million of damages related to losses they claimed to suffer when the Cheyne SIV went bankrupt in August 2007.

King County and the Iowa Student Loan Liquidity Corp, meanwhile, had been seeking $70 million of damages over Rhinebridge, which had been structured by Germany's IKB Deutsche Industriebank AG and was wound down in August 2008.

IKB settled the Rhinebridge case last year, and credit rating agency Fitch Ratings, a unit of France's Fimalac SA , settled last month.

The cases are Abu Dhabi Commercial Bank et al v. Morgan Stanley & Co et al, U.S. District Court, Southern District of New York, No. 08-07508; and King County, Washington et al v. IKB Deutsche Industriebank AG et al in the same court, No. 09-08387.