Liquidators of Bear Stearns Hedge Funds Sue S & P, Moody’s and Fitch for $1.12B

Liquidators are suing Moody’s Investors Service (MCO), Standard & Poor’s, and Fitch Ratings over their issuing of allegedly fraudulent and inflated ratings for the securities belonging to two offshore Bear Stearns (BSC) hedge funds. The plaintiffs are seeking $1.12 billion.

The credit raters are accused of misrepresenting their autonomy, the timeliness of their residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs) ratings, and the quality of their models. Because of the purportedly tainted ratings for securities that were supposedly “high-grade,” the funds lost $1.12B.

The funds, which were operated by Matthew Tannin and Ralph Cioffi, failed in 2007. The US government later pursued the two men for securities fraud, but they were acquitted. They did, however, settle an SEC securities case over related allegations last year.

Just recently, a US district judge decided that the US Justice Department’s $5 billion securities fraud lawsuit against S & P could proceed. The government is accusing the credit rating agency of misrepresenting its ratings process as independent and free from influence when actually the impetus to make banks and its other clients happy got in the way of its objectivity. This supposedly caused S & P to put out AAA ratings for poor quality mortgage packages between ’04 and ’07, causing federally issued banks and credit unions to sustain huge losses.

If you think that you suffered investment losses because credit rating agencies misrepresented certain securities by giving them higher ratings than they merited, you may have reason to file a CDO lawsuit or an RMBS securities complaint. The SSEK Partners Group represents institutional investors that sustained losses because others in the securities industry were negligent or careless or committed financial fraud.

The funds involved in the liquidators’ lawsuit:
• Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) Ltd.
• Bear Stearns High-Grade Structured Credit Strategies (Overseas)

Liquidators of failed Bear Stearns funds sue rating agencies, Reuters, July 10, 2013

Bear Stearns Fund Liquidators Sue Credit-Rating Firms, Wall Street Journal, July 10, 2013

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GAO Wants SEC to Look At Other Criteria for Who Qualifies As An Accredited Investor, Institutional Investor Securities Blog, July 31, 2013