Via the good folks at Pruning Shears, this story which just made my day:
Ron Grassi says he thought he had retired five years ago after a 35-year career as a trial lawyer.
Now Grassi, 68, has set up a war room in his Tahoe City, California, home to single-handedly take on Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. He’s sued the three credit rating firms for negligence, fraud and deceit.
Grassi says the companies’ faulty debt analyses have been at the core of the global financial meltdown and the firms should be held accountable. Exhibit One is his own investment. He and his wife, Sally, held $40,000 in Lehman Brothers Holdings Inc. bonds because all three credit raters gave them at least an A rating — meaning they were a safe investment — right until Sept. 15, the day Lehman filed for bankruptcy.
“They’re supposed to spot time bombs,” Grassi says. “The bombs exploded before the credit companies acted.”
More of this, please. These guys have, as far as I can tell, gotten away with everything and really played an integral role in letting this mess happen.
Hunter Gathers
They are the true Masters Of The Universe. Are the ratings agencies regulated in any fashion whatsoever?
Did the people who run these agencies take thier money out of Lehman before it went bust?
Inquiring minds want to know.
4tehlulz
I kan haz clas akshun soot plz?
Zifnab
I just don’t know if this will hold up in court. It’s like suing Consumer Reports for giving Firestone tires a high rating right before they start flipping SUVs.
I mean, these guys aren’t really federal regulators. They’ve got all the regulatory pull of the Better Business Bureau.
I’d love to see these guys get nailed but… I mean… good luck with that.
blogenfreude
I love the smell of litigation in the morning.
Rick Taylor
What is he talking about? Accountability is for folk who didn’t read the fine print on their mortgages and are loosing their home, or people who’ve gone into more debt than they can handle on their credit cards, or children who’s parents were too selfish to sell whatever they needed to get their children health insurance. It’s not for big financial institutions.
Dreggas
Sorry to go OT but this is just too good
Lavocat
I couldn’t agree more, John.
Commence shit hitting fan on three, two, …
Ricky Bobby
We need to use the powerz of teh interwebz to start raising fundage for this guy to continue his crusade. If this isn’t grassroots I don’t know what is.
Go Grassi! Keep kicking them in the shins until you pare them down to size then cut their nuts off.
TheOfficialHatOnMyCat
Gotta go with Zif on this one, although I love what the Tahoe City guy is trying to do.
I am convinced that the real root of most of our problems is the United States of Corporations (and Financial Institutions) and anything that exposes their transgressions is good with me.
Zoogz
I sadly agree with Zifnab above while I also concur with Rick Taylor @5. Despite the fact that these three agencies have all of our financial futures in the midst of their cold, gripping claws, they’re not de jure, just de facto
It really sucks being on the wrong side of plausible deniability.
gopher2b
And he will never, ever win. They are bullet proof.
KG
fraud and negligence might just survive the demurrer stage (getting passed summary judgment is a whole other issue) in this case. but Mr. Grassi is going to have to show a duty owed to the plaintiff(s), and that becomes a bit more difficult without a contract or relationship of some sort. Even detrimental reliance won’t work, unless there’s some justification on it. [/California lawyer]
My other concern is that this guy hasn’t practiced in at least five years – the California Bar shows him as “inactive” since 2004. That’s a long time to go without practicing and then to jump into something like this is asking for trouble.
Tonal Crow
@Zifnab: The ratings agencies are not journalists, nor akin to them. They offer professional opinions for high fees, and they know that investors — and governments — rely upon their ratings. Also, they often advised issuers on how to structure their issues to achieve the highest possible ratings. Thus, the ratings agencies are much more like doctors or lawyers than like journalists. And, like doctors or lawyers, they should be liable for opinions that constitute malpractice.
Walker
@Zifnab:
Can’t we get them on RICO? The agencies did all collude with one another in fraud.
smiley
OT but here’s the outrage for the weekend. (actually, it is kinda outrageous.)
MattF
The ratings agencies aren’t just advisors, either. All these derivative contracts contain clauses about ratings– one can ask why, and just what these clauses were supposed to signify– other than “someone paid a fee”.
Dennis-SGMM
Is there a possible hook in the fact that the agencies rate bonds issued by states and municipalities? Isn’t there another hook in the fact that bond ratings influence interstate commerce in bonds and other financial instruments?
Jay in Oregon
@Zifnab:
There’s a big difference between Consumer Reports making a bad call about Firestone tires — did this actually happen, or were you using this as a hypothetical? — and the naked complicity of the ratings agencies in pushing junk investments.
A better hypothetical example would be finding out that Consumer Reports was getting a piece of the action from Firestone — in exchange for their “impartial” review of the quality of their tires.
KG
@ 17: to answer your questions: no and no. RICO or diversity jurisdiction is probably the best way into federal court, if that’s what you’re looking for. though there may be some violations of the Securities Act that may also get you into federal court. Venue isn’t all that important here, from a legal perspective, it’s the legal theories this guy is going to rely on. I’d need to see the complaint to be able to even guess at the chances, though.
Tonal Crow
@Dennis-SGMM: Sure; there is no shortage of such “hooks”. But the agencies argue that they’re immune from liability because they’re journalists — and are thus protected by the 1st Amendment. It’s a B.S. defense; ratings agencies provide professional services that their clients — and those with whom their clients deal, including governments worldwide — rely upon. Thus, like any other professional, they should be liable when their opinions constitute malpractice.
Perry Como
@Dennis-SGMM: You might be on to something. The ratings agencies were rating various derivatives that were scooped up by municipalities. Standing?
Zifnab
@Tonal Crow: @Walker: Hey, smoke’m if you’ve got’m. I’m not lawyer, so there may very well be a clear line of prosecution on these guys.
True, but I grew up on a street full of doctors. At any given time at someone was going through a malpractice lawsuit and I know of only one that lost – after the sixth or seventh case against him. (Needless to say, these guys were all big fans of “Tort Reform”).
If a doctor screens you negative for cancer and you come up with melanoma a month later, I don’t think you can reliably sue him over it. If a lawyer says, “don’t take the stand” and you lose your case, you might have room for appeal, but I don’t think you have room for a lawsuit.
These are difficult cases in the best of circumstances. And, from a political perspective, you’re looking at a Congress more than happy to legally immunize telecomm companies against complicity with government spying and fast food companies (in the infamous Cheeseburger Bill) from getting sued over making people sick – all retroactively.
I would absolutely positively fucking love to see this case take off, don’t get me wrong. But I think you’re flinging spitballs at giants on this one.
Tonal Crow
@Perry Como: Third-party beneficiary contracts? Taxpayer standing?
Tonal Crow
@Zifnab:
A bad outcome does not equal malpractice. The question is, rather, whether the professional failed to exercise the appropriate standard of care, and whether that failure caused the client’s damages. If a patient complains about a half-dollar-sized, itchy, painful, bleeding, multicolored, ragged-edged, protruding growth on her face that’s doubled in size in the last month, and the doctor says “it’s dandruff” and sends her home with a bottle of Head and Shoulders, then she dies of melanoma, that’s malpractice.
Dennis-SGMM
@KG: @Tonal Crow:
Thank you. So even though ratings agencies are in fact integral to transactions involving hundreds of billions of dollars (I doubt that anyone could sell a bond without a rating) they’re less accountable than a garage mechanic.
There just isn’t enough rope.
Evinfuilt
The rating agencies are at fault in the same way as Anderson was with Enron, it didn’t end well for Anderson. So I’ll keep my fingers crossed here.
Joel
I’m thinking of writing this guy and offering to help him in any way that I can.
Dennis-SGMM
@Joel:
Maybe we can all chip in on a hooker to get Spitzer to take the case.
omen
@Tonal Crow:
A bad outcome does not equal malpractice. The question is, rather, whether the professional failed to exercise the appropriate standard of care, and whether that failure caused the client’s damages.
there have been stories about whistleblowers within ratings agencies pointing to problems. first they were ignored, then they ended up getting fired.
i’d say firing whisetleblowers is indication of acting in bad faith.
Xanthippas
Anybody have Grassi’s email address? Looks like he’s going to need to hire some attorneys, and I just finished polishing my resume…
Michael
On a fun note, showing that The Masters of the Universe don’t understand the idea of “undersecured” as it is enshrined within the Bankruptcy Code (with its tandem concept of valuation of collateral):
The Lenders Obama Decided to Blame
But now the two men, along with a handful of other financiers, are being blamed for precipitating the bankruptcy of an American icon. As Chrysler’s fate hung in the balance Wednesday night, this group refused to bend to the Obama administration and accept steep losses on their investments while more junior investors, including the United Automobile Workers union, were offered favorable terms.
In a rare flash of anger, the president scolded the group Thursday as Chrysler, its options exhausted, filed for bankruptcy protection. “I don’t stand with those who held out when everyone else is making sacrifices,” Mr. Obama said.
Chastened, and under intense pressure from the White House, the investment firm run by Mr. Weinberg and Mr. Perella, Perella Weinberg Partners, abruptly reversed course. In a terse statement issued shortly before 6 p.m. Thursday, Perella Weinberg Partners announced it would accept the government’s terms.
It was too late.
…
The other creditors, who sought to distinguish themselves from those who have received bailout money, believed they had a stronger hand. Many of them bought Chrysler debt for about 30 cents on the dollar, long after it became clear that the company was in trouble. Most of this debt is secured by Chrysler assets — factories, equipment, real estate and the like. The thinking was that in the worst case, these assets could be sold at a profit if Chrysler were liquidated.
…
Mnemosyne
@Zifnab:
Is Consumer Reports actually financed by the companies that go to it for testing? I was looking on their website and couldn’t figure it out.
That’s what the problem seems to be with the credit ratings agencies and, like Evinfuilt said at #26, this sounds like it’s much more akin to Anderson giving cover to Enron’s practices when they were supposed to be their watchdog than it does Consumer Reports making a bad call. Unless, of course, Consumer Reports made that bad call after receiving a few million from Firestone as a “donation.”
Brick Oven Bill
One of the more interesting aspects of this fraud is that Moody’s largest investor is the President’s buddy Warren Buffet, you know, the one whose company Berkshire Hathaway is insuring Municipal Bonds. So it is very nice when you own both the insurance policies, as well as the rating agencies.
Buffett got into Municipal Bond insurance just over a year ago. He has either gone nuts or has something in with works with this Administration.
Ajay
It makes no sense at all. Even if the ratings agencies messed up (which they did), they did not force Grassi to buy based on that reasearch. I am certain that they washed their hands by simply saying act on your own etc. This is simply finding someone to blame of your losses. Grassi didnt have to.
Having said that, ratings agencies are incompetent and part of the problem, mainly because of lack of oversight. They have all gotten away from the mess they created but this is not the way to find the blame.
Zifnab
@Mnemosyne:
It’s not. At least, not last I checked. They don’t do advertisements or take money from businesses (at least, they’re not supposed to) in order to maintain impartiality.
The Grand Panjandrum
@Zifnab: You are correct. Ask Orange County California about that. (The case is mentioned toward the end of the Bloomberg article.) The ratings agencies are protected by the First Amendment and have always put a disclaimer on their ratings. It ain’t fair, but that is the way it is generally considered in the courts.
The fees the ratings agencies collect from the companies asking for the rating look like a conflict of interest, or at a minimum make the appearance of conflict, but it is not illegal.
A few low levels enlisted personnel go to jail for mistreating prisoners. High level government officials retire with large pensions after authorizing torture. The Senate defeats a bill to help out homeowners in bankruptcy hearings as tens of thousands of Americans teeter on the brink of financial ruin. (Moral hazard and all that sort of thing, you know.) Large financial institutions get government money for screwing up the system they rigged in their favor.
asiangrrlMN
I have no legal background, and I am completely demoralized on the subject of big banks and investment dudes because there doesn’t seem to be any negative consequences for these assholes. My hats off to Mr. Grassi for giving it the old college try. I won’t hold my breath for any positive results, though.
KG
@ 30: don’t have his email address, but here’s his state bar profile with contact information
Zifnab
@Brick Oven Bill: ZOMG! The entire financial collapse was arranged by Warren Buffet. And George Soros! It’s a… dare I say it… CONSPIRACY!
What, exactly, is your point Bill? Is this generic guilt by association or are you actively accusing the President of doing something?
I mean, it depends on what Moody’s says it was doing. If you appraise diamonds, for instance, and you start taking money to rate a bunch of cheap glass as the real deal, you’re basically complicate in fraud. However, if you’re just a generic third party advertiser, there’s not much anyone can hold against you if you run a “Cheap Glass! Just as good as Diamonds!” ad campaign.
But you can’t honestly chalk Grassi’s financial ruin up to personal responsibility. Who wasn’t getting fooled by these pristine ratings?
TenguPhule
One of the more pointless things BOB does is try to stretch the definition of investors to equal management.
Also, put up some proof please. Given BOB’s track record, we need verified proof of any and all claims submitted to BJ, complete with insurance bond.
Krista
Hard to say how this will pan out, as I’m not sure how it works in the U.S. I used to work for one of the big credit rating agencies, and do know that the credit rating is only as good as the information upon which it’s based. And the information is provided by the current lenders.
So, that is the question: were those credit agencies artificially bumping up their rating for Lehman? Or, were the lenders painting a rosier picture of Lehman than was actually the case?
Perhaps it’s different with consumer credit, but if my TDSR is 60% and I have a whackload of credit cards with R4 ratings, and that information is being reported faithfully to the agencies, then my rating should reflect that. But, if the information ISN’T being reported correctly, then my rating would not be accurate.
So, did the lenders whitewash Lehman’s records, or did the credit firms whitewash Lehman’s records? ‘Cause there’s no way in hell that Lehman filed for bankruptcy without accruing a fairly solid history of late payment/bad debt prior to this happening.
angulimala
And if you could somehow show that your tumor had been paying your doctor during that entire time …..
angulimala
Does this mean “legally required” – as in, “it is against the law not to do it”?
Is anyone required to base their decision off of Consumer Reports?
The Sphynx
@Evinfuilt: Actually Anderson went to the Supremes and won…
omen
@Michael:
i was wondering who these people were holding up the chrysler deal.
Brick Oven Bill
The point about Presidential ‘Economic Advisors’ Buffett (Moody’s +), and Pickens (windmill subsidies & Eminent Domain), and Immelt (NBC & windmill manufacture) is that this Administration is very willing to merge politics-industry-media, in a way which is unhealthy. The Left whined about ‘corporate welfare’ during the Bush Administration, and is now cheering as trillions are being funneled to bankers, industrialists, and let’s not forget Picken’s ‘smart grid’. I believe that these people are confused and/or easily led. John Snow and Dan Quayle are honchos at Cerberus.
Prediction: there will be a water distribution easement underlying these new hugely expensive power lines, which will be paid for by the taxpayer, which the German energy integrator E.On Netz lets us know that conventional iron power plants will have to be up and running to back up 90% of the windmills now, rising to 96% in 2020, causing a net increase in power use and greenhouse gas emissions. Pickens owns significant water rights, and these swaths of land that carry largely useless electricity to urban areas just might be able to…
Carry water to urban areas too! (gasp) Eminent Domain rocks, you see. Obtaining private utility easements takes forever.
You will have to go to Wikipedia for the quick introduction TenguPhule; Google ‘Moodys’. If you remain unconvinced, then you will have to go to Moody’s Shareholder information.
Zifnab
@angulimala: Then it was a pre-existing condition and your insurance company will drop you like a bad habit.
Lose lose.
TenguPhule
Technical Foul called on BOB for lying his ass off.
File under, BOB doesn’t know what the hell he’s talking about and it shows.
Zifnab
@Brick Oven Bill: So this isn’t actually a plan to improve the nation’s power grid. It is a plot by Buffet, Pickens, John Snow and Dan Quayle, a German Energy Integrator, and the domestic coal market to use eminent domain to seize water rights in a masterful attempt to…
Wait, is this the South Park episode where Obama and McCain try to steal the Hope Diamond?
TheFountainHead
Seriously, reading BOB’s posts is like listening to four hours of Alberto Gonzales testimony. Just makes you say, “What. The. Fuck.” out loud over and over again.
omen
@Zifnab:
it reminded me of the plot from quantum of solace, which involved water hoarding and where the faux environmentalist was set up as the bad guy. just like bob’s pickens example.
come on, bob, fess up. you just saw the movie, dinchya?
asiangrrlMN
I don’t read BOB. I just count on the rest of you to read him and sum it up for me so I don’t have to give myself indigestion. Thank you all for doing your duty.
P.S. I really appreciate the shorter BOB notes. So concise!
TenguPhule
No, 4 hours of Gonzo would make me want to shoot him, draw and quarter, then sports fish Great White Sharks with the remains.
BOB is a useful example of why the GOP should never be allowed near the reins of power for 10,000 years minimum.
jharp
Made my day to.
This is often exactly what happens. You can fuck most of the people most of the time. Then one day you fuck the wrong guy and….
Best to you Ron Grassi. You are a hero.
JL
@smiley: lol, The initial AP article about her volunteering at the food bank mentioned that she was dressing down.
Zifnab
@omen: That movie was awesome. And yeah, I was kinda thinking the same thing.
Don’t worry, at the end of it all, we’re saved by Tony Blair and T. Boone will get stuck in the desert drinking motor oil. Also, there will be hot chicks and explosions. So this’ll all work out for the best.
tc125231
Emma Anne
Not only does Consumer Reports not get paid to rate products or accept ads, they don’t even accept samples for rating. They go out and buy them anonymously just like any other consumer. Even cars.
The financial ratings agencies were both dishonest and inept, and I hope this retired lawyer finds some way to drag their butts into court. But why on earth did we ever allow a system where the ratings firms got paid by the banks and companies whose bonds they were rating? This needs to change.
Thadeus Horne
BOB…….BOB……Wake up!!!! You’re dreaming……you’re
dreaming that someone actually listens to the noxious gases
that rumble out of your mouth. Go take a pill and lie down.
mak
On its face, seems like Grassi has a pretty straightforward fraud case: false statements made with knowledge of the falsity and the intent that someone rely on them, and reliance upon those statements by the defrauded party to his detriment. Plus, I think Cali has a pretty good consumer fraud statute, though I’m not sure Grassi used that (caveat: not a Cali lawyer).
And under the current politico-judicial climate, I would think the BS First Amendment defense would be ripe for the crushing.
Of course, with the ratings agencies acting as SEC-approved monopolies and being “baked into” so much of the Wall Street gaming industry, there’s likely some sort of preemption defense imminent (the case has already been removed to federal court, according to the article). That, and it’s hard to maintain a fraud class-action (reliance is an individual question), so what may work for Grassi alone may not work for a class.
Either way, kudos to Grassi for taking ’em on. He said he just wants to get it in front of a jury, and I suspect he’s right that, if given the chance, twelve non-economists would be happy to spank Moody’s, S&P and Fitch.
Brick Oven Bill
Obama’s ‘Economic Advisor’ and ‘fundraiser’ owns Moody’s, get it? OK, here are your signs:
‘Easily Led’: Zifnab, TheFountainHead, omen, tc125231, Thadeus Horne;
‘Confused’: TenguPhule;
‘Other’: asiangrrlMN.
In any case, here is to a fruitful discovery phase.
Comrade Kevin
‘On Another Planet’: Brick Oven Bill
J. Michael Neal
I don’t know law, so I have no useful opinion on whether the credit rating agencies can be held liable. My not useful opinion is that they probably can’t. However, I do know accounting, and so I know that this is not a good comparison.
By law, auditors have a responsibility, not to the client who is paying them, but to the board of directors (the audit committee specifically), and to all potential users of the financial statements. This means that they can be held liable for fraud perpetrated upon a much wider class of people than just their own client.
For most actors, this isn’t the case. You can’t be guilty of fraud perpetrated upon some random stranger. There had to be some sort of contractual relationship, or at least a potential contractual relationship, before you have a legal responsibility to tell them the truth. My guess is that no one is going to be able to show that Moody’s had such a relationship with them, except the people who were paying them.
TenguPhule
I’d say a good lawyer could prove damn near anything.
r€nato
Any attorneys here who can explain exactly how Moody’s et al got themselves behind the 1st Amendment shield? I’m assuming they’ve paid the best attorneys to make sure they are bullet-proof in this regard but I’d still like to know how that situation came to be and exactly how bullet-proof they are. Have the Supremes actually laid down any rulings which make them bullet-proof even when they pull the kind of crap they did the last several years?
The Cat Who Would Be Tunch
Here’s a bit of trivia since we’re on the topic of credit ratings agencies. The same ratings firms, the ones that so competently analyzed mortgage-backed securities and gave them AAA ratings in the run-up to the financial meltdown, are being used by the Treasury to rate the same securities that will be sold under the PPIP. This fact was reported by the inspector general overseeing the bank bailout, Neil Barofsky.
I guess the lesson here is “If at first you don’t succeed…”
As for how liable the credit agencies are, this’ll be an interesting question to pose to a friend, who works for the defacto #1 insurance company since all the trouble began at AIG.
J. Michael Neal
I don’t think that they got themselves behind the 1st Amendment. They started out protected by it as a default position. They have not established any contractual relationship with outside investors that would remove that protection.
r€nato
@J. Michael Neal:
OK, then I think what I was asking, what I am wondering is, has this default position been put to the test? Haven’t they been sued, dragged into court and forced to defend this ‘default position’?
TheFountainHead - 'Easily Led'
Today’s lesson: BOB likes to put things in ‘single quotes’ and make wild accusations without the slightest evidence presented.
You may now return to your regularly scheduled debaucheries.
omen
@J. Michael Neal:
you mean fiduciary duty?
Legalize
I think there’s a decent breach of fiduciary duty argument in there. The ratings agencies sit in a position of confidence and trust and the public literally has no choice but to rely on their “expertise.” Compare the ratings agencies to insurance companies and lawyers. That’s the best bet. Also, if the ratings agencies combined or conspired with banks, RICO and the Sherman Antitrust Act might come into play, not to mention plain old common law tortious interference with contract and civil conspiracy. Plaintiffs wouldn’t have to prove a direct relationship if the underlying nature of their allegations was something grounded in conspiracy.
dbrown
@Brick Oven Bill: Let’s not forget that under bushwhack three hundred billion plus was given to these same banks; as for trillions from Obama? You are totally wrong if you think that is true; no such sum has been given but you often misstated what you mean and act surprised and somehow wronged because someone misunderstood what you meant – first, trillion is not trillions and frankly, what does the stimulus have to do with the bank loans? Also, that money gave an ownership stake (please value that and subtract from the money) and in any case, never amounted to a trillion or are you including the Treasury money (a private corporation, not a US department) which Obama has zero say or direct control?
Money for the new grid? Where did you get that – only congress can approve funding (if Obama requests), not Obama.
Finally, I remember nearly a trillion being spent on a war of choice in Iraq by bushwhack the puppet and ass wipe cheney which may very well grow into trillions paid by US taxpayers for no real benefit.
r€nato
…a short bit of googling revealed Jefferson County School District v. Moody’s, adjudicated by the 10th Circuit, as deciding that agency ratings were, ‘the world’s shortest editorials’.
Nevertheless, I am still curious how firm the legal ground is upon which they stand.
KG
ah, well, since they’re in federal court, i dug up the complaint. there is no way the complaint survives a 12(b)(6) motion (for the non-lawyers in the room, that’s a motion made pursuant to Federal Rule of Civil Procedure 12(b)(6) for dismissal on the grounds that the complaint does not state sufficient facts to raise a claim).
This is pretty much the entirety of his claim:
For this to survive, he’s going to need some actual facts.
KG
@71: there has to be mutual assent to form a fiduciary relationship.
gbear
I’ve been away from computers for a couple of days so apologies if this has been covered, but does John realize that The Steelers are responsible for the current flu pandemic?
I was having continental breakfast (a waffle that was demolished while trying to get it unstuck from the maker) at an Americinn in the SW corner of MN. CNN was on the TV and when they started to cover Obama’s reaction to the flu, the guy at the next table said to his buddies “I wish someone would shoot him”. I hope one of his kids is gay.
omen
uh oh, watch out, bob’s keeping lists.
Xenos
The best comparison I can think of for this is when the State of New Jersey sought to regulate professional wrestling as a sport. In order to avoid regulation, the WWF admitted that the matches were rigged and that they produced entertainment rather than running a sporting enterprise.
Similarly, Grassi’s suit may require the ratings agencies to defend themselves by stating that there is no reason anyone should be foolish enough to rely on the ratings. This may inspire the development of new rating agencies to replace the ones that deny any responsibility for implementing an honest and independent system.
Legalize
@75
I don’t know that such is always the case in non-agency situations. Moreover, mutual assent does not have to be express. See also “special relationship.”
SGEW
@omen:
I’m just disappointed I’m not on it.
TenguPhule
Great, BOB is contagious.
Seek treatment before it’s too late and you’re remininscing about midget lesbian wrestlers fighting on your table!
Xenos
@KG: Does he raise the conspiracy claim in such a way that would allow him to escape dismissal long enough to do some discovery?
Do the federal courts allow that sort of thing any more? Maybe that is one of those things covered in CivPro that never actually happens in the real world…
priscianusjr
Zifnab, Zoogz et al.,
I’m not sure you realize the power and importance of bond-rating agencies. For example, in relation to insurers. And insurers affect the rest of society.
http://www.moneyandmarkets.com/the-great-bond-insurance-cover-up-3-10090
There is nothing comparable to this with Consumer Reports.
Maybe there would be a parallel with Underwriters Laboratories. Except UL have not pulled any such stunts. And by the way, as the name attests, their main purpose is to help insurers set standards.
Legalize
Xenos, I haven’t read the Complaint, but we argue in cases all the time that the nature of a conspiracy claim necessarily requires some limited discovery to get to the bottom of the actual agreement. It works in federal court and state court in delaying a 12(b)(6) ruling.
gbear
@TenguPhule:
The Obama hater was herding an entire bus full of white blond college aged girls, who may have been lesbian wrestlers, but if they were midgets, they were giant midgets, and they were also very loud in the hotel hallways when they came in last night. Last night was one of the shittier hotel stays I’ve had in many many years.
asiangrrlMN
@gbear: Where were you, please? I need to know what other state/city to add to MY list of places I will never live. Thanks.
priscianusjr
Maybe I wasn’t clear. There are all kinds of legal regulations about the investment quality of bonds held by insurers, and the premiums those insurers, and therefore their customers, have to pay. Most insurance investments are in bonds, The higher the bond ratings, the lower the insurer’s reserve requirements and the lower the premiums. If the ratings of an insurer’s bonds go down, the reserve requirements go up and so do the rates. All of this is determined by bond-rating agencies.
I don’t see how they rating agencies could argue “there is no reason anyone should be foolish enough to rely on the ratings.” (Xenos at 78). Insurance companies are LEGALLY REQUIRED to calculate their reserve requirements and their premiums according to the ratings.
And that’s just insurance agencies. It’s the same for Money Market funds. Here, read this, you might learn something.
http://www.istockanalyst.com/article/viewarticle/articleid/2893124
gbear
@asiangrrlMN:
I think Obama hater was from South Dakota. It’s not quite fair to judge a town by who stays at their hotels, and I wasn’t in town long enough to get a feel for the city (although I did find out their record store was pretty bad).
JL
@gbear: That was funny. I hope that John reads the article. Post the link later in case he hasn’t seen it.
r€nato
@gbear:
I’m all for the first amendment, but isn’t merely saying that kind of thing aloud the sort of brainless utterance which can still earn a visit from the authorities if reported?
As much as I detested Bush and Cheney during their time in office, I never even contemplated the wish that someone would assassinate them.
asiangrrlMN
@gbear: You are right. I am not being fair. However, I know someone from SD, and she would say my unfairness is actually right on the mark. Still, I will reserve judgment.
Laura W Darling
@SGEW:
I was just feeling a tad left out myself, trying to imagine what I might like to see after my name in lieu of the sycophantish “Darling”.
Some things are better left mysteries.
gbear: Were you able to assess the length of the hair on the arms of the girls, and was there space between their thighs, or did they touch? Perhaps that falls into the “better left mystery” category.
liberal
@Zifnab:
The proper analogy to the ratings agencies doesn’t have a statistical sample of N=1. Rather, it’s a doctor who screened 1000 people for melanoma, they all came up negative, then they all died of melanoma.
KG
@82: he used a judicial counsel form complaint, the paragraph i quoted is the entire factual pleading, it’s repeated again with “intentionally” replacing “negligently” on his second cause of action. In state court, he’d get leave to amend, and generally, I don’t think federal courts look too fondly on granting a 12(b)(6) without leave to amend. But there’s going to have to be something.
r€nato
@Xenos:
That’s what I fear if we try to regulate these agencies (as much as they deserve it); they’ll just do a Texas two-step around whatever regulations are created.
This is the sort of thing which conservatives rail against, and I have a certain degree of sympathy with their arguments. Some government regulation of markets and society is necessary but it’s human nature to try to sidestep the law, whether because you want to make more money or because you want to get home a few moments more quickly so you run the stop sign if nobody is around. We all do it.
When your answer to every problem is to create another regulation, bit by bit you end up with a lot of government interference in our businesses and our lives which seemingly accomplishes no purpose other than to harass and annoy citizens. Campaign finance ‘reform’ is an excellent example of this principle in action.
If down the road these ratings agencies somehow come under regulation, let’s hope the regs are drawn up wisely, as minimally as possible and with due consideration for human nature.
liberal
@Emma Anne:
I agree completely that it’s idiotic.
On the other hand, the method of “the would-be buyers of the securies rate them” can’t work, because of free rider problems.
Leo v.2.0
@Dennis-SGMM:
Absolutely you can. Unrated junk bonds are sold all the time, frequently over the telephone. There’s a whole body of federal case law involving fraudulently marketed junk bonds with no value (the fraud-created-the-market doctrine).
In general, fraud occurs when one party makes a knowingly false statement of a material fact with the intention that others rely on it, and another party actually and reasonably relies on the statement to his detriment. In a securities fraud case you can generally show “reliance” through the action of the market (because the market price is presumed to reflect all relevant public information), so in theory a claim should be stated if he can show that the rating agencies made knowingly false statements of material facts about bonds with the intention that others rely on it. Doesn’t sound insurmountable to me. It should come down to what he can find in discovery. If the rating agencies put bad stuff in writing they could take a hit.
[I am a lawyer, but I am not your lawyer. The preceding material is half-assed blog comments analysis, not legal advice.]
TenguPhule
Speak for yourself.
Some of us feel laws matter, even if there is nobody around the stop sign.
TenguPhule
This would boil down to “If the public finds you lied to them, they get to burn you at the stake.”
Soylent Green
E.On Netz, BOB? Are you sure you didn’t mean I.Am Nutz?
Please stop sharing your knowledge of power generation, since your only source of it appears to be stuff you misinterpreted after reading it in old copies of “Popular Mechanics” in the waiting room of your local Jiffy Lube.
J. Michael Neal
@omen: Reading the thread over at Yglesias’ place? I don’t mean a fiduciary duty, no. The duty an independent auditor has to produce reliable work is a legal requirement imposed by the SEC, not a fiduciary duty. That’s sort of a technical distinction, but it does create some differences.
r€nato
@TenguPhule:
works for me.
r€nato
@TenguPhule:
well I guess this makes me a horrible person, but if I am out bike-riding on low-to-no-traffic residential streets (which I do, often) and I happen upon a stop sign at an intersection where I can plainly see there are no vehicles and no pedestrians and no bicycles anywhere to be seen…
…I ain’t coming to a full and complete stop.
omen
@J. Michael Neal:
no, i don’t normally read yglesias.
TenguPhule
Yes, but we forgive you anyway. :P
J. Michael Neal
@omen: There’s just a very active thread going on at the moment in which fiduciary duty plays a big role.
someguy
@ J. Michael Neal
Oppenheimer can cite fiduciary duty and reliance on the bankruptcy code all it wants, but these aren’t normal times and when the government steps in and tells you to do something, you do it. I can see some possibility of liability there, but think about the hundreds of thousands of workers directly affected by this, and the millions less directly but still affected by it. What Oppenheimer could permissibly hold out for – if they actually are afraid of shareholder suits and its not just some Masters of the Universe bullshit job – is a directive from Treasury or elsewhere in the government telling them to eat their losses on the secured debt, and to move along quietly, your country thanks yo for your service, etc. The people who destroyed the economy – and okay, maybe Oppenheimer wasn’t heavily involved in securitized mortgages but they are certainly members of the class of businesses that put us in this predicament – ought to be grateful that Congress hasn’t taken their shitpiles of wealth away before they can turn it against us.
Mnemosyne
True, but if we get caught, most of us don’t try to argue that we shouldn’t be issued a ticket because there are too many traffic laws and no one can be expected to follow all of them all of the time. We sign the ticket and pay the fine because, even though what we did was probably safe, it was still illegal and the cops still have a duty to ticket us for doing it even if no one got hurt.
bob h
One wonders why the SEC itself hasn’t already filed these charges.
The argument these agencies will make is that their ratings represent “free speech”.