The liquidators of two Bear Stearns hedge funds filed a lawsuit on Monday against the three major U.S. rating agencies, accusing them of fraudulently assigning inflated ratings to securities in the run-up to the financial crisis.
The lawsuit seeks to recover more than $1 billion from Moody's Investors Service, Standard & Poor's and Fitch Ratings to cover losses sustained by the hedge funds.
The complaint filed in New York state court in Manhattan cites messages and emails by employees of the rating agencies to help build a case that the agencies misrepresented their independence and objectivity.
"It could be structured by cows, and we would rate it," the 141-page lawsuit quotes an S&P employee as messaging a colleague.
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Some of the same emails were cited in a $5 billion civil fraud lawsuit brought in a federal court in California by the U.S. Department of Justice against S&P in February. Fitch and Moody's are not defendants in that lawsuit.
The latest case was brought by the liquidators of Bear Stearns High-Grade Structured Credit Strategies (Overseas) and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage (Overseas).
All three rating agencies said in statements that the allegations were "without merit."
The liquidators began their case in July, after the federal judge in the California case signaled that he would allow the Justice Department to pursue its lawsuit against S&P. More than a dozen U.S. states have also sued S&P.