Ratings Agencies Sued For Bear Hedge Fund Collapse

Nov 19 2013 | 10:23am 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."


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