MANHATTAN (CN) - Moody's corrupt "Ratings for Sale" business enabled corporations to sell trillions of dollars of risky securities to investors worldwide, a shareholders class action claims in Federal Court. "(B)esides burning Moody's reputation to the ground, defendants have helped ignite the greatest financial wildfire this nation has seen since the Great Depression," the complaint states.
Lead plaintiff the Louisiana Municipal Police Employees System accuses Moody's and its directors of breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment and securities violations.
"This action concerns the wholesale corruption by defendants of the credit ratings process at Moody's," the complaint states. "During the relevant period, defendants steered the company in a 'race to the bottom' in the market for assigning credit ratings, particularly asset-backed securities known as 'structure finance' securities. At the behest of securities issuers, defendants consistently rated the securities far more favorably than they deserved, including thousands which received the coveted triple-A rating. Defendants, whose own compensation grew swollen in line with the company's revenues, if effect erected a huge sign over Moody's which read: 'Ratings For Sale.'
"As a result of defendants' misconduct, trillions of dollars of highly risky securities were sold to investors that should never have seen the light of day. Beginning in late 2007, Moody's was forced to 'come clean' and downgrade most of these securities. The rest went into default. All of these events have had a hugely magnified effect on the rest of the U.S. financial system. Thus, besides burning Moody's reputation to the ground, defendants have helped ignite the greatest financial wildfire this nation has seen since the Great Depression.
"Today, the company's reputation and future business prospects are in tatters. The company's share price has been cut to a sliver of its former value. Company executives have been required to testify before Congress and provide evidence to various regulatory agencies and state attorneys general In hearings as recent as Oct. 22, 2008, one U.S. congressperson summarized defendants' actions at Moody's as nothing less than 'a bone-chilling definition of corruption.' Securities lawsuits against, and regulatory investigations of, Moody's have been commenced across the country. Given defendants' destruction of the company's primary asset - it reputational capital - there is, finally, the question whether the company can continue as a going concern."
Plaintiffs are represented by Lewis Kahn with Kahn Gauthier Swick of New Orleans.
This 85-page lawsuit includes 8 pages of appendices.
Here are the individual defendants: CEO Raymond McDaniel, Jr., John Wulff, Basil Anderson, Robert Glauber, Ewald Kist, Cornelius McGillicuddy III, Henry McKinnell, Jr., Nancy Newcomb, Brian Clarkson, Mark Almeida, Noel Kirnon, Andrew Kimball, Linda Huber, Michael Kanef, Stephen Tulenko, Jeanne Dering, Michel Madelain, Joseph McCabe, Carlton Charles, and Blair Worrall.
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