|  | | 2008 News and Press Releases | | |
HEADLINE NEWS:
Subprime Litigation Targets: Rating Agencies, Auditing Firms?
Kevin LaCroix
The D & O Diary. December 1, 2008
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EXCERPT: The subprime scapegoating process has resulted in a round up of the usual suspects, including directors and officers of publicly traded companies. But among other targets many aggrieved parties seem particularly keen to blame in the subprime debacle are the rating agencies. […] The urge to try to hold the rating agencies responsible has reached a creative new level in the action filed on November 17, 2008 by the National Community Reinvestment Coalition, a national coalition of over 600 community-based housing advocacy organizations, against Fitch’s and Moody’s. The complaint was filed with the Department of Housing and Urban Development’s (HUD) fair housing and equal opportunity unit. The complaint, which can be found here, purports to be brought under the Fair Housing Act of 1968 and alleges that the defendants "facilitated, encouraged and profited from subprime loans that were designed to fail, due to unfair payment terms and borrower income levels that could not sustain home ownership based on those payment terms." The complaint further alleges that the defendants "unlawful actions caused a disproportionate adverse impact on African Americans and Latinos." The defendants are alleged to have "facilitated…predatory real-estate transactions" through their "unwarranted ratings, which fueled and sustained subprime lending." The defendants are also alleged to have "facilitated discriminatory conduct" because their "inflated ratings…allowed discriminatory securitized subprime loans to be originated, brokered and serviced." The defendants’ alleged role was "central" because "investors purchased securities based on their ratings," as a result of which the defendants "profited significantly." Further, the defendants "knew or should have known that the predatory practices permeated the subprime securitization market." The complaint seeks a declaratory judgment that the rating agencies violated the FHAA, a permanent injunction requiring the agencies to "take all affirmative steps necessary to remedy the effect of the illegal, discriminatory conduct"; |
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