Creditnet News Story
Lawmakers make credit agencies liable for misleading investors
Friday, June 18, 2010
By Thomas Astery
From now on, credit rating agencies that either knowingly or recklessly mislead their investors could be sued.
Lawmakers agreed to a new bill that would hold credit rating agencies liable for losses suffered by stockholders when they intentionally or negligently mislead investors, said a report from Reuters. The move was an attempt by Congress to make credit agencies more accountable than they have been in the past, when some gave top ratings to properties that did not deserve them.
The Reuters report said that such ratings were applied to subprime mortgage securities, whose value nosedived when the U.S. housing market crashed. The credit agencies have argued that this new liability standard would open the door for them to be singled out for blame, and would lead to frivolous lawsuits.
One item that was stripped from the bill would have also prevented the agencies from being paid by the credit lenders whose debt they rate, the report said.
A Wall Street Journal report on the bill said that the agencies will now produce fewer analyses of financial products because they can be sued based on a "reasonable" investigation, a lower standard than those auditors or equity analysts face.
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