NEW YORK, Feb 23 (Reuters) - A lawsuit accusing Moody's Corp MCO.N of misleading shareholders about the independence of its credit ratings business may go forward, a federal judge ruled in court documents made public on Monday.
The judge rejected attempts by the rating agency to dismiss the case, which accuses the company and CEO Raymond McDaniel of securities fraud.
But the judge did narrow the lawsuit, and threw out claims against former Moody’s Investors Service Chief Operating Officer Brian Clarkson and Michael Kanef, the company’s chief regulatory and compliance officer.
The judge, Shirley Wohl Kram of U.S. District Court in Manhattan, said the plaintiffs -- a group of Moody’s shareholders led by the Teamsters Local 282 Pension Trust Fund and two individuals -- could try to revive the dismissed claims by refiling them in a different form.
Moody’s, in a statement, said the ruling was “preliminary” and not one on the lawsuits’s merits.
“Although we are disappointed that the court did not dismiss the lawsuit entirely, we recognize that it is very difficult to prevail on a motion to dismiss ...” the company said. “We are pleased that the court still recognized many flaws in this lawsuit and dismissed a substantial part of the case.”
Ira Press, an attorney for the Moody’s shareholders, said that most of the claims in the lawsuit were allowed to proceed and that the plaintiffs were reviewing whether to try to get the dismissed claims reinstated.
Rating agencies have been blamed by critics for helping to foment the U.S. subprime mortgage meltdown by giving high ratings to subprime-linked securities that later disintegrated. The raters also have been criticized as being too close to issuers who foot the bill for their ratings.
The shareholder lawsuit contends that Moody’s made false and misleading statements in order to artificially bolster its stock price, harming investors when more information was disclosed and shares fell.
It accuses Moody’s of falsely claiming it was an independent body that published ratings accurately and impartially.
The judge, in allowing the lawsuit to proceed, said a variety of facts alleged by the plaintiffs “belie defendants’ claims of independence and ratings integrity.”
The lawsuit is seeking class-action status on behalf of Moody’s investors who bought securities issued by the company from Feb. 3, 2006 to Oct. 24, 2007. The plaintiffs are demanding a jury trial on their claims. (Editing by Phil Berlowitz)
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