Financial Regulatory Forum

INTERVIEW-Einhorn says ruling changes game for Moody’s, S&P

September 5, 2009

moodys    NEW YORK, Sept 4 (Reuters) – A court setback for Moody’s Corp <MCO.N> and Standard & Poor’s parent McGraw-Hill Cos <MHP.N> this week could potentially prove “devastating” for the two credit rating agencies, said David Einhorn, a hedge fund manager who announced a short position against Moody’s in May.
   In an order issued late on Wednesday, U.S. District Judge Shira Scheindlin in Manhattan said ratings on notes sold privately to a select group of investors were not “matters of public concern” deserving traditionally broad protection under the First Amendment of the U.S. Constitution.
   Plaintiffs as a result may pursue fraud claims accusing Moody’s, S&P and underwriter Morgan Stanley <MS.N> of making false statements about notes backed by subprime mortgages and other debt.
   “It’s an important case. I think it’s a game changing decision,” Einhorn said in an interview Friday.
   Einhorn told Reuters he thinks the ruling will stand as a milestone, because a lawsuit challenging top ratings granted by S&P and Moody’s may for the first time move past the pretrial phase and be heard in court. If the plaintiffs prevail, he said, more investors could file their own suits.
   “Simply losing one case like this, were it to stand up, could have have a devastating effect,” he said.
   Officials from Moody’s and McGraw-Hill both observed that the judge dismissed all but one of 11 claims, and that they expect the remaining claim will be defeated. (Reporting by Joseph A. Giannone; Editing by Lisa Von Ahn) ((joseph.giannone@thomsonreuters.com; +1 646 223 6184; Reuters Messaging: joseph.giannone.reuters.com@reuters.net ))     Keywords: MOODYS/EINHORN 
  
Friday, 04 September 2009 17:30:05RTRS [nWEN3118  ] {C}ENDS

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