* Judge says share price declines not linked to conflicts
* "Issuer-pays" model challenged
By Jonathan Stempel
NEW YORK, Aug 23 Moody's Corp and its
Chief Executive Raymond McDaniel won the dismissal of a lawsuit
accusing the parent of Moody's Investors Service of defrauding
shareholders by making false statements about the independence
and objectivity of its credit ratings.
In a decision made public on Friday, U.S. District Judge
George Daniels in Manhattan said the shareholders failed to show
a sufficient link between the alleged misstatements and declines
in Moody's share price.
The lawsuit by the Teamsters Local 282 Pension Trust Fund of
Lake Success, New York and two individuals, Charles McCurley and
Lewis Wetstein, concerned alleged conflicts of interest in
Moody's "issuer-pays" model, where debt issuers pay for ratings.
First brought in 2007, the lawsuit accused Moody's of
inflating its share price by having made statements in its code
of conduct, regulatory filings and to the press that concealed
conflicts in how it rated structured finance securities.
It said a series of events brought these conflicts to light,
and hurt Moody's share price.
These events allegedly included an August 2007 statement by
Alabama Sen. Richard Shelby that rating agencies deserve some
blame for the U.S. housing crisis, and Moody's October 2007
release of quarterly results and a subsequent analyst downgrade.
They also allegedly included a May 2008 article about
Moody's failure to correct a known computer glitch that led to
false ratings on complex European debt products known as
constant proportion debt obligations.
Daniels, however, concluded that none of these events was
linked closely enough with alleged misstatements about Moody's
ratings independence to justify a securities fraud claim.
"Plaintiffs fail to establish a connection between the
loss-causing events and the actual share price declines as
required to survive summary judgment with respect to loss
causation," Daniels wrote.
Ira Press, a lawyer for the plaintiffs, did not immediately
respond to requests for comment.
Moody's spokesman Michael Adler said the New York-based
company is pleased with the court's decision.
The case is unrelated to lawsuits brought in February by the
U.S. government and many states accusing McGraw Hill Financial
Inc's Standard & Poor's of misleading investors by
inflating its credit ratings. S&P has denied wrongdoing.
The case is In re: Moody's Corp Securities Litigation, U.S.
District Court, Southern District of New York, No. 07-08375.