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Abstract: 

This article discusses current issues facing credit rating agencies in light of the unprecedented expansion of potential regulatory and litigation risk following the recent financial crisis. The credit rating industry—premised on providing additional information and insights to the market about an array of complex financial instruments—has become a target of the regulatory backlash. The authors address the First Amendment defense, which has long protected rating agencies’ freedom to distribute their opinions; the risk of expanding liability under the federal securities laws and potential defenses; the new exposure facing the industry from the DOJ’s use of FIRREA; and the numerous state Attorney General cases filed around the country.

Keywords: “actual malice” defense; rater-ratee relationship; Section 10(b) claims; Section 11 claims; FIRREA; “due diligence” defense; “negative causation” defense; “subjective falsity” defense; “mere puffery” defense

Affiliations:  1: Latham & Watkins; 2: Latham & Watkins; 3: Latham & Watkins.