* Rating agencies, Morgan Stanley reach settlements
* Investors said to lose money on structured investments
By Nate Raymond and Jonathan Stempel
NEW YORK, April 26 Moody's Investors Service and
Standard & Poor's on Friday said they have settled two
long-running lawsuits seeking to hold them responsible for
misleading investors about the safety of risky debt vehicles
that they had 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.
Settlement terms were not disclosed in the cases, which had
been brought in 2008 and had sought more than $700 million of
damages. Both lawsuits were dismissed with prejudice, meaning
they cannot be brought again.
Moody's spokesman Michael Adler, McGraw-Hill spokesman Jason
Feuchtwanger and Morgan Stanley spokesman Mark Lake confirmed
their companies' respective settlements.
"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," Adler said.
Feuchtwanger said McGraw-Hill's settlement involved no
admission of wrongdoing.
Lawyers for the plaintiff investors did not immediately
respond to several requests for comment.
A trial in the Cheyne case had been scheduled for May 6
before U.S. District Judge Shira Scheindlin in Manhattan, who
oversaw both lawsuits.
Credit rating agencies have been accused by investors,
regulators and politicians of inflating the ratings of risky
mortgage-backed and structured securities in a bid to win new
Critics said these activities also fueled demand from
investors who believed the ratings were objective, but prices
collapsed once the risks materialized, helping to trigger the
2008 global financial crisis.
S&P still faces the U.S. Department of Justice's $5 billion
civil fraud lawsuit filed in February over its ratings, the
government's first major post-crisis action against a credit
rating agency. The credit rating agency is trying to dismiss
In the Cheyne and Rhinebridge cases, investors accused
rating agencies of collaborating with banks to ensure that SIVs
received ratings as high as "triple-A," 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 have suffered when the Cheyne
SIV went bankrupt in August 2007. The similarly-named firm that
managed the SIV did not go bankrupt.
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.
Among the defenses raised by the rating agencies were that
their ratings were opinions that deserved free speech protection
under the First Amendment to the U.S. Constitution.
Scheindlin limited that defense in a 2009 ruling, saying
that ratings on notes sold to select investors were not "matters
of public concern" deserving broad free speech protection.
The government has not hit Moody's and Fitch with lawsuits
similar to the case it is pursuing against S&P.
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.