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From Securities Regulation Daily, June 7, 2013

Litigation Against S&P To Move to Manhattan

By Anne Sherry, J.D.

More than a dozen fraud actions against credit rating agencies will be centralized in the Southern District of New York. The United States Judicial Panel on Multidistrict Litigation granted the transfer request of the defendants The McGraw-Hill Companies, Inc. and Standard & Poor’s Financial Services LLC (collectively S&P) over the opposition of the state and District of Columbia plaintiffs. The panel also denied the request of the defendants Moody’s Corp. and Moody’s Investors Service, Inc. (collectively Moody’s) to separate the claims against them and remand them to the Southern District of Mississippi (In re Standard & Poor’s Rating Agency Litigation, June 6, 2013, Vratil, K.).

Common questions. The MDL panel found that the 19 actions involve common questions of fact surrounding allegations that S&P intentionally misrepresented that its analysis of structured finance securities was independent of any existing or potential business relationship with the issuer. Rather than questioning S&P’s methodology or the ratings themselves, the states allege that S&P misleadingly offered a product materially different from what it purported to provide the marketplace. The majority of the actions were filed in state court on the same day, and the complaints are highly similar and in some respects identical, the panel found. The panel concluded that centralization would eliminate duplicative discovery, prevent inconsistent pretrial rulings, and conserve the resources of the parties, their counsel, and the judiciary.

Plaintiffs’ opposition to centralization. The plaintiffs — 14 states and the District of Columbia — argued that the MDL panel has never centralized litigation of this type, that transfer would inconvenience the states, and that transfer is unnecessary in light of the historic cooperation among state attorneys general. The panel maintained that centralization is appropriate in light of the factual overlap among the actions. The inconvenience to S&P of litigating in numerous districts in addition to state courts is high, and centralization would offer efficiencies to all parties in dealing with common issues. The panel noted that the plaintiffs filed 15 separate, but similar, briefs on the narrow issue of centralization, belying their promises of cooperation.

Opposition of Moody’s. The panel likewise denied the request that the claims against Moody’s in the Southern District of Mississippi be separated from the claims against S&P in that action and remanded. Transferring the entire action would avoid conflicting rulings on a pending motion to remand, the panel noted, and if that motion is decided against remand, the transferee judge can suggest remand of the Moody’s claims at that time. The MDL panel noted that this would be a closer question if the action were against Moody’s only.

Transfer to New York. On balance, the panel determined, the Southern District of New York is an appropriate transferee forum. S&P’s principal place of business is in the district, and witnesses and evidence may be found there. Also, some of the alleged misconduct occurred in New York, including statements about S&P’s independence and objectivity and its ratings of structured finance products.

The case is MDL No. 2446.

Companies: The McGraw-Hill Companies, Inc.; Standard & Poor’s Financial Services LLC; Moody’s Corp.; Moody’s Investors Service, Inc.

MainStory: TopStory CreditRatingAgencies FraudManipulation NewYorkNews

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