The Federal Home Loan Bank of Pittsburgh won a court order allowing its lawyers to question an ex-Moody’s Investor Service Inc. executive who criticized credit-rating companies before the U.S. Congress.
Judge R. Stanton Wettick, in state court in Pittsburgh, denied Moody’s request to block a deposition of Jerome Fons, formerly a Moody’s managing director for credit, in the home loan bank’s lawsuit against the Moody’s and JPMorgan Chase & Co. (JPM) over $2.3 billion in losses on mortgage-back securities sold by JPMorgan.
“The burden imposed on Moody’s if the deposition takes place is minimal,” Wettick said in a Dec. 11 decision. “I cannot rule out the possibility that the deposition will produce relevant information favorable to plaintiff and/or information reasonably calculated to lead to the discovery of admissible evidence.”
Home loan bank lawyers want to ask Fons, who left Moody’s in 2007, about testimony he gave under seal in a separate lawsuit brought against financial institutions. Moody’s argued that Fons has no firsthand knowledge of the alleged effect market-share pressure had on analysts and nothing relevant to offer in the Pittsburgh case.
Fons told the U.S. House Oversight and Government Reform Committee in October 2008 that originators of structured securities typically sought ratings from the company with the lowest standards, “engendering a race to the bottom in terms of rating quality.”
Until his departure, he helped set criteria for how the firm rated the debt of corporations, financial institutions and countries.
The Federal Home Loan Bank of Pittsburgh claims Moody’s and its competitors assigned the highest ratings possible to mortgage-loan pools to ease their sale to institutional investors while knowing the securities were junk bonds, according to court papers.
Michael Adler, a Moody’s spokesman, didn’t immediately respond to an e-mail seeking comment on the ruling after regular business hours.
The case is Federal Home Loan Bank of Pittsburgh v. J.P. Morgan Securities LLC, GD09-016892, Court of Common Pleas of Allegheny County, Pennsylvania (Pittsburgh).
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