According to a letter written by prosecutors to Moody’s (MCO), the U.S. Department of Justice intends to sue the credit rating agency and its Moody’s Investors Services unit over valuations that the latter assigned to mortgage-backed securities leading up to the 2008 financial crisis. The MBS fraud case is expected to make claims about the way the agency rated collateralized debt obligations and residential mortgage-backed securities, as well as allege violations of the Financial Institutions Reform, Recovery, and Enforcement Act as it pertains to rating RMBSs and CDOs. Moody’s disclosed the expected case in an update that also included third quarter earning results.
Aside from the DOJ case, several states’ Attorney Generals are expected to pursue their own claims against Moody’s, except that their cases would be brought under state law.
A number of ratings companies have come under fire over their alleged failure to provide accurate warnings about the risks involved in investing in MBSs and CDOs leading up to the economic crisis. In 2013, the DOJ sued Standard & Poor’s over similar allegations, along with the claim that the agency misled investors for its own profit while misrepresenting the actual risks involved in the securities. Last year, S & P settled with the DOJ, the District of Columbia, and 19 states for almost $1.4B. The government and the states took issue with the way S & P rated the CDOs and RMBSs that it issued from ’04 to ’07.
Meantime, in another high-profile mortgage fraud case, the DOJ and Deutsche Bank (DB) have yet to reach a settlement in the mortgage-backed securities probe against the German lender. The government, which accused Deutsche Bank of packaging toxic mortgages between ’05 and ’07, sought $14B but the firm argued that the amount is too high.
Since 2008 financial crisis, our RMBS fraud lawyers and CDO fraud attorneys continue to work with investors seeking to recoup their losses. Many investors were not apprised of the actual risks involved in investing in mortgage-backed securities and collateralized debt obligations. Contact the SSEK Partners Group today.
We work with institutional investors and high net worth individual investors. Our the years, we have helped thousands of investors that were the victim of securities fraud to recover their money. Our clients are based in the US and abroad.
DOJ Planning to sue Moody’s over crisis-era mortgage bond ratings, HousingWire, October 21, 2016
DOJ to Sue Moody’s, Reuters, October 21, 2016