Apparently, the right of free speech does not include protection against being greedy and corrupt a-holes!
“It’s the first major ruling upholding fraud allegations against an arranger and the rating agencies on the instruments that are at the heart of the financial crisis,” saidPatrick Daniels, a lawyer at Coughlin Stoia Geller Rudman Robbins LLP, the San Diego-based securities litigation firm that represented investors in the case.
“In previous cases, the ratings companies would hide behind First Amendment protection, saying they were merely reporting their opinion,” Daniels said.
According to Daniels, Scheindlin rejected the First Amendment claim because the rating firms’ opinions are an essential component of private-placement transactions in which securities are sold directly to institutional or private investors without a public offering.
The case concerns notes issued by Cheyne Finance Plc, a so- called structured investment vehicle that collapsed in 2007, which received the “highest credit ratings ever given to capital notes,” according to the ruling. SIVs issued short-term debt to fund purchases of higher-yielding long-term notes and failed when credit dried up amid the financial crisis.
The rating companies worked directly with Morgan Stanley to structure the notes, and their own compensation was based on the notes receiving the desired ratings, according to the order. The ratings companies were paid more than three times their normal fees, the judge said.
The value of the notes collapsed during the worst economic slump in decades, making repayment of the debt impossible as it came due, according to the ruling. The notes were liquidated at discounted prices, leaving investors with a fraction of their investment or with notes that were worthless, according to the opinion. The investors sued based on fraud, negligence and contract claims to recover their losses.
Three times their normal fees! Time to abandon the free speech angle and take the incompetent moron angle. I guess they never figured the fee structure on the deal would look "untoward". Guess again boys. Pretty soon you'll have nowhere to hide.