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Credit Rating Agency Provision in Financial Reform Bill a Boon to Litigators?

CRA Everybody is talking this morning about the hard-fought compromise on a financial reform bill, which will now be making its way to the president's desk for signature before July 4.

As expected, there are widely divergent opinions on whether the bill is a "game-changer" or will serve only to preserve the status quo. Over at the WSJ Law Blog, Nathan Koppel seizes on one particular provision of the law that might have litigators salivating:

For starters, the legislation would allow investors to sue credit-rating firms for a “knowing or reckless” failure to conduct a reasonable investigation. That is a higher liability bar than the one proposed in earlier versions of the legislation. A bill approved by the House in December, for example, would have required investors to merely show that a ratings company was “grossly negligent” in issuing a grade, Bloomberg reports.

Suits against the credit rating agencies have been coming fast and furious since the meltdown, and, while the agencies have been coming out on top regularly, plaintiffs have not given up. Though the agencies have claimed to be unconcerned about the difference between the two standards, commentators have noted that more litigation and increased risk of liability would, of course, be worrisome. 

Though a small part of the reform package, it will be interesting to see how this subplot plays out.

Posted by Eric Lipman on June 25, 2010 at 12:35 PM | Permalink | Comments (1)


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