Certified Forensic Loan Auditors, LLC

 
  Upcoming Classes

Search CFLA's Article Archive:

Suit Charges 3 Credit Rating Agencies With Fraud in Bear Stearns Case

dealbook.nytimes.com | November 11, 2013

By Peter Lattman

The collapse of two Bear Stearns hedge funds in 2007 was among the earliest signs of the impending financial crisis. More than six years later, lawyers continue to fight over the cause of their demise.

On Monday morning, liquidators seeking to recover money for investors in the funds filed a fraud lawsuit against three major credit rating agencies.

The action, filed in New York State court, accuses Standard & Poor’s, Fitch Ratings and Moody’s Investors Service of assigning artificially high credit ratings to the mortgage bonds in the funds. When those bonds collapsed, the funds failed, resulting in more than $1 billion in investor losses.

In a 141-page complaint, the liquidators cite a trove of emails – some of which had already surfaced in earlier cases – which they say show that the agencies knew their high-quality ratings on the mortgage bonds were a sham.

“It could be structured by cows and we would rate it,” an S.&P. employee said to a co-worker in a text message from 2007.

“We sold our soul to the devil for revenue,” a Moody’s employee said in an internal document.

In an email, another S.&P. employee called the firm’s ratings practices a “scam.”

James C. McCarroll, a lawyer representing the liquidators, said that by giving risky mortgage bonds misleading ratings, the agencies were enriching themselves at the expense of investors in the Bear hedge
funds that owned these bonds.

“It is time for these organizations to be accountable for their misdeeds,” said Mr. McCarroll, a partner at Reed Smith.

The liquidators, Geoff Varga and Mark Longbottom, had signaled the action against the agencies in July with the filing of a four-page summons and notice, an effort to beat a six-year legal deadline for fraud cases in New York State.

Representatives for S.&P., Fitch and Moody’s have said the charges were without merit.

The lawsuit is hardly the first seeking to hold the ratings agencies accountable for losses incurred during the financial crisis. The Justice Department filed a civil fraud action this year against S.&P., the first federal enforcement action against a credit rating firm. Numerous state attorneys general have also sued S.&P. over similar claims in Federal District Court in Manhattan. S.&P. has denied wrongdoing; Fitch and Moody’s were not named as defendants in those lawsuits.

It is also hardly the first legal action related to the two Bear funds, which collapsed in July 2007. Federal prosecutors brought criminal securities fraud charges against the funds’ managers, Ralph R. Cioffi and Matthew M. Tanin. The two fought the charges and a jury found them not guilty after a trial. Federal securities regulators also filed civil lawsuits against Mr. Cioffi and Mr. Tanin, and they both settled the cases without admitting wrongdoing.

The rating agencies are not the only ones the liquidators have blamed in the collapse of the funds. In August, JPMorgan Chase, which acquired Bear in 2008, reached a settlement with the liquidators, who had accused Bear of failing to properly structure the hedge funds and provide them with adequate oversight. It also settled with the funds’ directors, including Mr. Cioffi and Mr. Tanin. The terms of both settlements were undisclosed.

S.&P., Moody’s and Fitch have come under widespread criticism in the wake of the financial crisis. Questions have been raised about their business practices and whether their independent analysis was compromised in the pursuit of profit.

During the housing boom, S.&P., Fitch and Moody’s made millions of dollars by issuing ratings on the complex pools of home loans being packaged and sold by the banks. These pools, called residential mortgage-backed securities and collateralized debt obligations, collapsed in value when the financial crisis struck.

A report by the Financial Crisis Inquiry Commission concluded that the credit ratings firms were “key enablers of the financial meltdown.”

Mortgage bond investors have had mixed results bringing civil lawsuits against the ratings agencies. S.&P. and the other agencies have argued that their ratings are speech protected by the First Amendment. A number of judges have agreed with the ratings agencies and tossed out these lawsuits. Others have said the ratings were not opinions, but misrepresentations that were possibly the result of negligence or fraud.

S.&P. also said its ratings were not to be relied upon, in part because the investors had the same information as it did.

In July, a federal judge denied S.&P.’s motion to dismiss the government’s case and called its defense “deeply and unavoidably troubling.”

The judge, David O. Carter of Federal District Court in Los Angeles, asked, “If no investor believed in S.&P.’s objectivity, and every bank had access to the same information and models as S.&P. is S.&P. asserting, as a matter of law, the company’s credit ratings service added absolutely zero material value as a predictor of creditworthiness?”

 

Back to November 2013 Archive

CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

SEE BELOW- http://www.certifiedforensicloanauditors.com

Call us toll free at 888-758-2352

Bookmark and Share
spacer
Facebook Like us on Facebook
Twitter Follow us on Twitter
YouTube View our YouTube Videos
LinkedIn Connect to us on Linkedin
 
BBB Logo

 

spacer
Contact us or view our Sample Documents & Audits by completing the form below.

  • Reload
  • Should be Empty:


 

DVD Sets Only $99

 

FREE Mortgage Fraud Analysis

 

Order Cutting-Edge Services Now

 

Quiet Title Packages from Licensed Attorneys

 

Affiliate Services

 

CFLA Sponsored Attorney Links

 

Take-Home Education Package

 

ALB Law Firm

 

Advocate Legal

 

The True News Network

 

Sutton Law Firm, P.L.L.C.

 

Rubenstein Business Law

 

Atighechi Law Group

 

Scunziano & Associates

 

Get Certified to Perform Mortgage Securitization Audits

 

CFLA Training Academy

 

Expert Witness Services

 

Cutting Edge Expert Securitization Reports

 

CFLA Credit Cards

 

Breaking News

 

Letters to the Editor

 

CFLA Weekly Newsletters

 

Code of Ethics

 

Testimonials

 

Instructional Videos

 

Job Opportunities

 

License Opportunities

 

MARS Rule

 

Product Samples

 

Resource Links

 

Servicer Information

 

Foreclosure Laws

 

REST Report

 

Quiet Title Packages from Licensed Attorneys

 

Advertise on CFLA

 

Advertising Space: Mortgage Securitization, Quiet Title

 

Certified Forensic Loan Auditors, LLC
13101 West Washington Blvd.
Suite 444
Los Angeles, CA 90066

Phone: 832-932-3951
Toll Free: 888-758-CFLA (2352)
Mobile Users: CLICK TO CALL
info@certifiedforensicloanauditors.com

   
 
CFLA IS NOT A LAW FIRM AND DOES NOT PROVIDE ANY LEGAL ADVICE. CFLA DOES NOT OFFER FORECLOSURE CONSULTING OR FORECLOSURE RELIEF
SERVICES. CFLA DOES NOT OFFER OR ASSIST WITH ANY LOAN MODIFICATION SERVICE. CFLA ALWAYS RECOMMENDS THAT CLIENTS RETAIN COMPETENT COUNSEL IN THEIR RESPECTIVE JURISDICTION. CFLA HAS A FREE PROGRAM TO REFER CFLA CLIENTS TO LAW FIRMS IN NEARLY EVERY STATE AND CFLA
DOES NOT CHARGE OR OBTAIN REFERRALS FEES FOR THESE SERVICES. SERVICES NOT OFFERED TO RESIDENTS OF THE STATE OF NEVADA.

 
Home About Us Privacy Policy Terms of Service Disclaimer SERVICES Careers Contact Us
 
COPYRIGHT © 2007-2016 Certified Forensic Loan Auditors ™ All rights reserved