The Federal Home Loan Bank of Pittsburgh won a court order allowing its lawyers to question an ex-Moody’s Investors Services 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. over losses on $1.8 billion in mortgage-backed securities sold by JPMorgan, according to court papers.
“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.
The home loan bank has argued that the conduct and deals at issue in the case are the same as those addressed in a $13 billion settlement JPMorgan, the biggest U.S. lender by assets, reached with the U.S.
Wettick ordered JPMorgan to turn over by Dec. 17 a draft of the Justice Department’s proposed lawsuit that was the basis for the accord, according to a transcript of a Dec. 6 hearing filed in court yesterday.
The draft complaint may disclose relevant documents JPMorgan gave to the government or the names of witnesses whose testimony is germane to the case, lawyers for the home loan bank said in court filings.
In addition to the complaint, JPMorgan must turn over the name of an employee who cooperated with the U.S. investigation, according to court records.
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).