Legal Briefing: Ratings Agencies Lose in Court, Again
CalPERS Suit Against Ratings Agencies Survives Motion to Dismiss
Plaintiffs seem to have figured out that the way to sue the ratings agencies for their grossly inflated ratings of mortgage-backed securities is to bring a state law claim. Bloomberg reports that the suit brought by California Public Employees Retirement System, CalPERS, against all three major ratings agencies has survived a motion to dismiss. The claim that the court allowed to go forward was "negligent misrepresentation," based on California law.
CalPERS, the country's largest public pension fund, has sued the agencies for giving their highest ratings to three structured investment vehicles (SIVs) backed by risky sub-prime mortgages. Allegedly relying on the ratings, CalPERS invested in the SIVs and quickly lost $1 billion.
To win its case -- and a decision is far off at this point -- CalPERS will have to show that: the ratings agencies made a false statement of fact without a reasonable basis for believing the statement was true; CalPERS reasonably relied on the statement; and CalPERS was damaged as a result. At this stage, Judge Richard Kramer has assumed all of CalPERS allegations are true, and then held, as a matter of law, that CalPERS has a viable claim.
According to Judge Kramer, the First Amendment does not protect the agencies' ratings, making him at least the second judge to so hold in a state law claim. Unfortunately, an opinion hasn't yet been released, so it's not clear what his decision will mean for other cases.
Senator Specter's Trying to Punish Aiding and Abetting Financial Fraud
As AmLaw Litigation Daily reports, Senator Arlen Specter (D-Penn.) has introduced an amendment to the financial reform bill being debated that would undo a court case holding that aiders and abetters of financial fraud aren't liable to shareholders. If his amendment gets onto the bill and the bill passes, prosecutors will have a powerful new tool to go after financial fraud. Frankly, it's amazing they don't have it already; with other sorts of crime, aiders and abetters are easily prosecuted. Why not financial fraudsters?
Shareholders Sue Goldman
Late Monday Goldman Sachs (GS) filed an 8-K with the Securities and Exchange Commission, disclosing six shareholder suits against Goldman but not discussing the criminal investigation, reports Corporate Counsel.
Feds to State Insurance Commissioners: Check WellPoint's Math
The Wall Street Journal reports that an investigation of WellPoint (WLP) by U.S. Health and Human Services Secretary Kathleen Sebelius found that the health insurer's requests for massive rate hikes in California -- 39% -- were based on faulty math. Secretary Sebelius advised all state insurance regulators to double-check WellPoint's math in their state's filings. I wonder how widespread WellPoint's errors are, and if it's the only company with faulty -- and thus inflated -- numbers...
And in the Business of Law...
Greenberg Traurig wins a malpractice claim; the ABA Journal reports the jury agreed GT wasn't responsible for paying fees that went unpaid, costing the client a patent, because the client had fired GT before the fees were due.
A female partner suing her old firm, Dickie, McCarney & Chilcote, for sex discrimination first has to establish that she's an employee. She lost at the trial court level but is now arguing to the Third Circuit that despite being a "partner," the partners above her controlled her compensation, her employment status, and the conditions of her job, making her an employee, explains AmLaw Daily.
Above the Law has a depressing new thread, "Which Firms Are Pulling Offers?"ATL notes that graduating law students are devastated at any time when a firm job offer is canceled -- but it's especially tough to withdraw an offer now as students are graduating, moving, and studying for the bar. What if a graduate relocates across the country and studies for a state bar exam, only to find he or she no longer has a job there? One can only hope the firms help the graduates out.