BROOKLYN (CN) – Top securities rating agencies contributed to the nation’s economic catastrophe by wantonly accepting untrue and misleading statements about unsound mortgage-backed securities, a class action claims in Federal Court. The class claims that Moody’s Investors Service, the Fitch Group and McGraw-Hill Cos. cost investors billions of dollars by failing to investigate the trustworthiness of statements issued by (nonparty) J.P. Morgan Acceptance Corp.
As a result, institutional investors took a beating when the true value of these securities was revealed and the global economy unraveled, claims lead plaintiff, the Public Employees’ Retirement System of Mississippi.
The pension plan says the ratings agencies played a “vital role” in creating subprime mortgage-backed securities. The process of securitization transformed undifferentiated mortgage loans into a hierarchy of securities with distinct risk attributes that could be marketed to potential investors.
The pension plan says the rating agencies at best neglected their fiduciary responsibilities by not accurately rating pre-structured mortgage-backed securities: instead, they started with the rating that was requested by the certificate issuer, and built a deal around it.
This laxity and greed gave the highly paid paper pushers the incentive to create as many AAA investment pools as they could sell, regardless of their true worth, according to the complaint.
McGraw Hill owns Standard & Poors.
MissPER is seeking compensatory damages for itself and other class members in an amount to be determined at trial.
It is represented by Marian Rosen with Wolf Popper of Manhattan.