Standard & Poor’s and Moody’s Corp. won dismissal of a lawsuit claiming they defrauded investors who relied on their ratings before buying $63 billion of investment-grade mortgage-backed securities.
U.S. District Court Judge Jed Rakoff in New York on Wednesday also dismissed some claims against J.P. Morgan Chase, Bank of America Merrill Lynch and ABN AMRO Bank, a unit of Royal Bank of Scotland, in a lawsuit filed by institutional investors.
The complaint claimed banks and rating companies made untrue statements and omissions in registration statements and prospectuses for 84 offerings sold as safe. In a two-page order, Mr. Rakoff tossed claims against S&P parent McGraw-Hill, Moody’s, Merrill Lynch Mortgage Lending, First Franklin Financial and Credit-Based Asset Servicing and Securitization, or C-Bass.
Mr. Rakoff said he will explain his reasons in a written opinion.
“The likely reason to come from Judge Rakoff’s opinion will be important to many defendants in financial crisis litigation,” said C-Bass attorney Jamie Wareham of Paul Hastings Janofsky & Walker. “The disclosures were adequate, and the market knew of the risks associated with subprime products.”
S&P and Moody’s face investor lawsuits and criticism by lawmakers for grading mortgage bonds too high and maintaining the ratings months after home-loan defaults surged in 2007.
Frank Briamonte, a spokesman for McGraw-Hill, said the company is pleased with the judge’s decision.
Samuel Rudman, a lawyer for the $652 million Iron Workers Local No. 25 Pension Fund, Novi, Mich., one of the investors that sued, and Michael Adler, a spokesman for Moody’s, didn’t immediately return calls. William Halldin, a Merrill Lynch spokesman, didn’t have an immediate comment. Brian Marchiony, a spokesman for J.P. Morgan, declined to comment.