(Updates with comment by Moody’s in eighth paragraph.)
Oct. 3 (Bloomberg) -- Moody’s Corp., Fitch Inc. and Standard & Poor’s must face claims in a lawsuit brought by investors in mortgage-backed securities that they violated New Mexico securities law.
U.S. District Judge James O. Browning in Albuquerque, New Mexico, in a Sept. 30 order denied the rating companies’ request to dismiss the claim against them. The judge didn’t provide his reasons for the ruling, saying he will issue a detailed opinion later.
The plaintiffs, led by the Maryland-National Capital Park & Planning Commission Employees’ Retirement and the Midwest Operating Engineers Pension Trust Fund, filed an amended complaint in December 2010, seeking to represent other investors in $5 billion of Thornburg Mortgage Home Loans Inc. mortgage- backed securities.
The investors allege that the rating companies gave the securities false and misleading AAA or Aaa ratings.
In a Feb. 11 request to dismiss the claim, lawyers for the rating companies said every court has rejected efforts to hold them liable under federal securities law.
The plaintiffs’ claim under New Mexico law was a “blatant attempt to avoid the parade of recent decisions that have rightly held that issuing credit ratings is not the same thing as selling or underwriting securities,” according to the filing by the companies.
Browning also granted and denied in part motions to dismiss by the underwriters and other defendants.
“Moody’s believes the lawsuit is without merit and remains confident the claims against it will ultimately dismissed,” Michael Adler, a spokesman for the New York-based company, said in a phone interview.
Ed Sweeney, a spokesman for Standard & Poor’s in New York, had no immediate comment on the ruling. Sandro Scenga, a spokesman for Fitch, didn’t immediately return a call to his office seeking comment.
A federal judge in Columbus, Ohio, on Sept. 27 threw out a case against the three companies alleging their ratings of mortgage-backed securities were faulty and caused five Ohio public employee pension funds to buy money-losing investments.
U.S. District Judge James L. Graham agreed with the firms that the ratings were “predictive opinions.” Without specific allegations that the ratings services intended to defraud investors, the companies couldn’t be held liable, he said.
The case is Genesee County Employees Retirement System v. Thornburg Mortgage Securities Trust 2006-3, U.S. District Court, District of New Mexico (Albuquerque).
--Editors: Peter Blumberg, Fred Strasser
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