Moody’s, S&P, Fitch Must Face Fraud Claims in SIV Suit

Moody’s Corp., Standard & Poor’s and Fitch Inc. must face fraud claims in an investor lawsuit over their ratings of a structured investment vehicle called Rhinebridge that collapsed in 2007, a judge ruled.

Morgan Stanley, which helped set up the investment, also lost a bid to dismiss claims of aiding and abetting fraud in a ruling yesterday by U.S. District Judge Shira Scheindlin in Manhattan. Scheindlin narrowed the suit, dismissing other claims.

Many of Scheindlin’s rulings yesterday are similar to ones she made last year in a related case over Morgan Stanley’s “Cheyne” structured investment vehicle. In both cases, Scheindlin said the ratings services could be found liable if they misstated their opinions about the investments and if the ratings were false or misleading. Fitch Inc. wasn’t sued in the Cheyne case.

“Plaintiffs must provide evidence that the rating agency issued a rating that it knew was unsupported by facts or analysis -- that the rating agency did the equivalent of issuing a restaurant review despite never having dined at the restaurant,” Scheindlin wrote in an opinion yesterday.

Mary Claire Delaney, a spokeswoman for New York-based Morgan Stanley, declined to comment on yesterday’s rulings. Ed Sweeney, a Standard & Poor’s spokesman, didn’t immediately return a phone message seeking comment.

“We are confident that Moody’s will ultimately prevail on the claims in this litigation,” Michael Adler, a spokesman for the company, said in a phone interview. Adler said the Rhinebridge ratings represented the honestly held views of the analysts involved.

“We respectfully disagree with the court’s decision and we will continue to vigorously defend ourselves against these allegations,” Dan Noonan, a spokesman for Fitch, said in an e-mail.

The Rhinebridge case is King County, Washington v. IKB Deutsche Industriebank AG, 09-cv-08387, U.S. District Court, Southern District of New York (Manhattan). The Cheyne case is Abu Dhabi Commercial Bank v. Morgan Stanley & Co., 08-cv-07508, U.S. District Court, Southern District of New York (Manhattan).

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