Ratings Agencies Sued Over '07 Bear Hedge Funds Collapse

Jul 11 2013 | 11:31am ET

The liquidators of two Bear Stearns hedge funds that were among the earliest victims of the credit crisis have sued the three major credit-rating agencies.

The Bear Stearns High-Grade Structured Credit Fund and a more highly-levered sister fund collapsed in 2007, costing investors some $1.6 billion and contributing to the bank's eventual fall. The funds' managers were acquitted of misleading investors and last year settled allegations leveled by the Securities and Exchange Commission.

Now, the fund's liquidators say much of the misleading was done by Fitch Ratings, Moody's Investors Service and Standard & Poor's Ratings Services, which "intentionally and knowingly misrepresented information concerning their independence, the accuracy of their ratings, the quality of their models, and the extent of their surveillance" of the mortgage-backed securities that the hedge funds bought.

Tuesday's court filing was not the liquidators' full complaint, and did not include details of their allegations. The lawsuit, brought in New York state court in Manhattan, appears designed to beat a six-year statute of limitations; the ratings agencies began to downgrade the funds' holdings in July 2007.

Both Fitch and S&P said the allegations were "without merit."


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