Ratings Agencies Sued For Bear Hedge Fund Collapse

Nov 19 2013 | 11:23am ET

A lawsuit accusing the three major credit-ratings agencies of playing fast-and-loose with their grades for two Bear Stearns hedge funds whose collapse presaged the financial crisis has come more than six years after their fall.

The liquidators for the Bear Stearns High-Grade Structured Credit Fund and a more highly-levered sister fund filed their fraud complaint against Fitch Ratings, Moody's Investors Service and Standard & Poor's last week. Geoff Varga and Mark Longbottom in July indicated that the lawsuit would be coming with a summons and notice. Those filings came before the six-year anniversary of the funds' collapse, which cost investors some $1.6 billion and contributed to the bank's eventual fall, after which such claims would be barred.

"It is time for these organizations to be accountable for their misdeeds," James McCarroll, a lawyer for the liquidators, said.

According to the lawsuit, the ratings agencies misled investors about their independence, accuracy and abilities when rating the mortgage-backed securities bought by the Bear hedge funds. It cites dozens of e-mails and messages between employees at the companies; in one, an S&P employee said that it would rate a mortgage bond "structured by cows," in another, a Moody's employee wrote, "We sold our soul to the devil for revenue."

In July, both Fitch and S&P called the allegations, brought in New York State court, "without merit."


In Depth

Q&A: Decathlon Capital On Revenue-Based Alternative Lending

Oct 30 2017 | 3:49pm ET

The explosion in private credit activity since the end of the financial crisis is...

Lifestyle

CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Saxby: Not All EBITDA Is Created Equal

Nov 30 2017 | 8:02pm ET

Record levels of dry powder are driving competition among private equity firms to...