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Original Articles

External Credit Assessment Institutions: Clash of Expectations and Accountability Issues

Peter Yeoh Corporate and financial services law researcher and lecturer, School of Law, Social Sciences and Communications, University of Wolverhampton.
Pages 393-427 | Published online: 30 Jan 2017

  • M Swartz and S Watkins, Power Failure: The Rise and Fall of Enron (Aurum Press, 2003), 340–60.
  • Letter from Egan-Jones Ratings Company to the Secretary of US Securities and Exchange Commission (SEC) November 15 SEC Hearing on Credit Rating Agencies (File Number 4–467), available at http://www.sec.gov/news/extra/credrate/eganjones2.htm (accessed on 15 September 2011).
  • C Carrara, “The Parmalat Case” (2006) 70 RabelsZ 538; G Ferrarini and P Giudici, “Financial Scandals and the Role of Private Enforcement: The Parmalat Case”, European Corporate Governance Institute (ECGI) Law Working Paper No 40/2005 (2005); A Melis, “Corporate Governance Failures: To What Extent is Parmalat a Particularly Italian Case?” (July 2005) 13 Corporate Governance 478.
  • Credit Rating Agency Reform Act 2006, Public Law 109–291, 120 Stat 1327, codified at 1934 Act S 15E, 78 USC S 780–7 (2006), 109th Congress, 29 September 2006, hereinafter referred to as CRARA 2006; G Shorter and MV Seitzinger, “Credit Rating Agencies and their Regulation” (3 September 2009), Congress Research Service Report for Congress, available at http://www.crs.gov (accessed on 15 September 2011).
  • Committee of European Securities Regulators (CESR), “Technical Advice to the European Commission on Possible Measures Concerning CRAs”, CESR/05-139b (2005); CESR, “The Role of CRAs in Structured Finance”, CESR/08-036 (2008); Van den Burg Report by the Committee on Economic and Monetary Affairs, A6-0087/2005; Communication from the Commission on CRAs (2006) [2006] OJ C59/2; S Utzig, “The Financial Crisis and the Regulation of Credit Rating Agencies: A European Banking Perspective”, ADB Institute Working Paper No 188 (26 January 2010), available at http://www.adbi.org/workingpaper/2010/01/26/3446.credit.rating.agencies.european.banking.perspective (accessed on 15 September 2011).
  • Code of Conduct Fundamentals for CRAs (IOSCO, 2004). Hereinafter referred to as the 2004 IOSCO Code or the Code.
  • Financial Crisis Inquiry Commission (FCIC), The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States (PublicAffairs, 2011), 3–26; JE Stiglitz, Freefall: America, Free Markets, And The Sinking of the World Economy (WW Norton & Co Inc, 2010), 1–57; A Sheng, From Asian to Global Financial Crisis (Cambridge University Press, 2009), 375–410.
  • Johansson, T, “Regulating CRAs: The Issue of Conflicts of Interest in the Rating of Structured Finance Products” (2010) 12 Journal of Banking Regulation 1.
  • MK Brunnermeier, “Deciphering the Liquidity and Credit Crunch 2007–2008” (Winter 2009) 23 Journal of Economic Perspectives 77.
  • SC Hill, “Why Did Rating Agencies Do Such a Bad Rating Subprime Securities?” (Spring 2010) 71 University of Pittsburgh Law Review 1; LJ White, “Markets: The CRAs” (Spring 2010) 24 Journal of Economic Perspectives 211; LJ White, written testimony before the Subcommittee on Oversight and Investigations Committee on Financial Services US House of Representatives Hearing on “Oversight of the CRAs Post-Dodd-Frank” (27 July 2011); E Benmelech and J Dlugosz, “The Credit Rating Crisis”, NBER Working Paper 15045 (June 2009). Benmelech and Dlugosz found empirical evidence that rating shopping contributed to faulty ratings and that ratings provided by one agency are more likely to suffer more severe downgrades.
  • European Central Bank (ECB), “Credit Rating Agencies: Developments and Policy Issues” (May 2009) ECB Monthly Bulletin.
  • F Partnoy, “Rethinking Regulation of Credit Rating Agencies: An Institutional Investor Perspective”, paper commissioned by the Council of Institutional Investors (April 2009), available at http://www.cii.org/UserFiles/file/CRAWhitePaper04-14-09.pdf (accessed on 15 September 2011); F Partnoy, ‘How and Why CRAs Are Not Like Other Gatekeepers', Legal Studies Research Paper No 07–46 University of San Diego (May 2006); F Partnoy, Infectious Greed: How Deceit and Risk Corrupted the Financial Markets (Times Books, 2003), 65–67, 385–97; F Partnoy, ‘The Siskel and Ebert of Financial Markets: Two Thumbs Down for the CRAs' (1999) 77 Washington University Law Quarterly 619.
  • J Katz, E Salinas and C Stephanou, “Credit Rating Agencies: No Easy Regulatory Solutions”, The World Bank Group Crisis Response Note Number 8 (October 2009), available at http://www.rru.worldbank.org/documents/CrisisResponse/Note8/pdf (accessed on 15 September 2011).
  • Brunnermeier, supra n 9, 77.
  • RJ Shiller, “Subprime Solution: How Today's Global Financial Crisis Happened and What to Do about It”, National Bureau of Economics Research Paper (November 2008), available at http://www.pup.princeton.edu/titles/8714.html (accessed on 15 September 2011); N Roubini, “Crisis Economics” (Spring 2010) The International Economy 33.
  • G Tett, Fool's Gold: How the Bold Dream of a Small Tribe at JP Morgan was Corrupted by Wall Street Greed and Unleashed a Catastrophe (Free Press, 2009), 165–242; JH, Cochrane, “Lessons from the Financial Crisis” [Winter 2009–10] Regulation 34; K Summe, “Misconceptions about Lehman Brother's Bankruptcy and the Role Derivatives Played” (2011) 64 Stanford Law Review Online 16.
  • B Walters, The Fall of Northern Rock: An Insider's Story of Britain's Biggest Banking Disaster (Harriman House Limited, 2008), 125–36; A Brummer, The Crunch: The Scandal of Northern Rock and the Escalating Crisis (Random House, 2008), 36–74.
  • S Pagliari, “Pushed to the Sidelines? IOSCO and the Changing Role of International Regulatory Institutions After the Crisis”, paper presented for the workshop “Remaking Globalization”, 5–7 May 2011, Temple University, Philadelphia; G 20 Toronto, “The G-20 Toronto Summit Declaration June 26–27 2010”, available at http://www.g20.org/Documents/g20_declaration_en.pdf (accessed on 15 September 2011).
  • The World Bank Group, “Financial Crisis: What the World Bank is Doing” (20 September 2011), available at http://www.worldbank.org/financialcrisis/bankinitiatives.htm (accessed on 21 September 2011).
  • P Deb, M Manning, G Murphy, A Penalever and A Toth, “Wither the Credit Rating Industry”, Financial Stability Paper No 9 (Bank of England, March 2011).
  • Dodd-Frank Wall Street Reform and Consumer Protection Act, 111th Congress, 5 January 2010, H R 4173, Subtitle C Improvements to the Regulation of CRAs, H R 4173–7, ss 931–939H, hereinafter referred to as DFA 2010; A Darbellay and F Partnoy, “Credit Rating Agencies and Regulatory Reforms” in CA Hill and BH McDonnell (eds), Research Handbook on the Economics of Corporate Law (Edward Elgar Publishing Limited, 2012), 273–97.
  • Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16th September 1009 on CRAs (hereinafter referred to EUCRA 2009) became operative on 7 December 2010; Regulation (EU) No 1095/2010 of the European Parliament and of the Council established the European Supervisory Authority (European Securities and Markets Authority (ESMA), [2010] OJ L331, 84; Katz et al, supra n 13.
  • J Hilscher and M Wilson, “Credit Ratings and Credit Risk”, Oxford Said Business School Working Paper (January 2012); AH Catanach and IE Ketz “Credit Rating Agencies: Useless to Investors” (6 June 2011), available at http://www.blogs.smeal.psu.edu/grumpyoldaccountants/archives/113 (accessed on 20 September 2011).
  • C Alessi, “The Credit Rating Controversy” (US Council of Foreign Relations, 10 August 2011), available at http://www.cfr.org/united-states/credit-rating-controversy/p22328 (accessed on 20 September 2011).
  • EU Commission, “Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EC) No 1060/2009 on CRAs”, COM(2011) 747 Final (Brussels, 15 November 2011), hereinafter referred to as EUCRA 2011; B Paudyn, “Forum: Misguided Ventures: A Quasi-Public EU CRA” [2011] Intereconomics 262. Paudyn argues that an EU CRA can undermine the EU's authority to manage effectively the sovereign debt crisis.
  • Bill of Rights, First Amendment [Religion, Speech, Press, Assembly, Petition (1791)] 1020 states that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof, or abridging the freedom of speech, or of the press”. Legal Information Institute, “First Amendment” (2011), available at http://www.law.cornell.edu/wex/First_Amendment (accessed on 22 December 2011).The Supreme Court requires the state to provide substantial justification for the interference with the right of free speech. Generally, this does not provide members of the media with any rights not provided to citizens; written testimony of Eugene Volokh, Professor of Law UCLS before the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises of the House Committee on Financial Services at Approaches to Improving CRA Regulation (19 May 2009), available at http://www.house.gov/apps/list/financialsvcs_dem/volokh.pdf (accessed on 22 December 2011); Prepared Statement of N Koppel, “Credit Raters Plead the First. Will It Fly?” Wall Street Journal (WSJ), 21 April 2009), 1.
  • S Rousseau, “Enhancing the Accountability of Credit Rating Agencies: The Case for a Disclosure-Based Approach” (2005) 51 McGill Law Journal 617.
  • D Masciandaro, “What if CRAs Were Downgraded?: Ratings, Sovereign Debt and Financial Market Volatility” (2011) Intereconomics 254. Masciandaro here discusses the communication effects of ratings linked to the perception gap; A Duff and S Einig, “Credit Rating Agencies: Meeting the Needs of the Market?”, paper commissioned by the Institute of Chartered Accountants of Scotland (2007).
  • HC Koh and ES Woo, “The Expectation Gap in Auditing” (1998) 13 Managerial Auditing Journal 147.
  • JC Edmunds, “Securities: The New World Wealth Machine” (Autumn 1996) 75 Foreign Policy 118, as cited in K Phillips, Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism (Penguin Group, 2008), 96–119.
  • J Crawford, “Hitting the Sweet Spot by Accident: How Recent Lower Court Cases Help Realign Incentives in the Credit rating Industry” (Fall 2009) 42 Connecticut Law Review 13. Crawford refers to structured finance as the issuance by bankruptcy-remote, special-purpose entities of securities with graduated repayment schemes with the special-purpose entities collateralised by assets like mortgages or credit card receivables. He argues that broad reliance on excessively optimistic credit ratings of structured finance products helped to ignite the crisis, and that misalignment of incentives at CRAs contributed to this excessive optimism; Tett, supra n 16, 165.
  • V Kothari, Securitisation: The Financial Instrument of the Future (John Wiley & Sons, 2006), 108–90; A Jobst, “What is Securitisation?” [September 2008] Finance & Development 48.
  • Brunnermeie, supra n 9, 77.
  • PV Roy, ‘Credit Ratings and the Standardised Approach to Credit Risk in Basel 11', ECB Working Paper Series No 517 (August 2005).
  • Ibid.
  • HJ Blommestein, A Keskinler and C Lucas, “Outlook for the Securitisation Market” [2011] OECD Journal: Financial Market Trends 1.
  • Brunnermeier, supra n 9, 77.
  • Blommstein et al, supra n 36, 1.
  • M Pagano and P Volpin, “Credit Rating Failures and Policy Options”, Centre for Economic Policy Research Working Paper No 7556 (September 2009); H Jo, C Lee, A Munguia and C Nguyen, “Unethical Misuse of Derivatives and Market Volatility Around the Global Financial Crisis” (July 2009) 2 Journal of Academic and Business Ethics 1.
  • T J Pate, “Triple-A Ratings Stench: May the CRAs be Held Accountable” (Spring 2010) 14 Barry Law Review 25; United States Senate Permanent Subcommittee on Investigations, “Wall Street and the Financial Crisis” (13 April 2011). Committee on Homeland Security and Government Affairs, “Anatomy of a Financial Collapse” (13 April 2011), 1–14, 243–317.
  • L Bai, “On Regulating Conflicts of Interest in the Credit Rating Industry” (2010) 13 New York University Journal of Law & Public Policy 253; SEC Press Release, “SEC Examinations Find Shortcomings in CRAs: Practices and Disclosures to Investors” (8 July 2008), available at http://www.sec.gov/news/press/2008/2008-135.htm (accessed on 22 December 2011); CESR, “CESR's Second Report to the EU Commission on the Compliance of CRA with IOSCO Code”, CESR/08-2077 (May 2008); M Elkhoury, “CRAs and Their Potential Impact on Developing Countries”, United Nations Conference on Trade and Development Discussion Paper No 186 (January 2008); A Johnston, “Corporate Governance is the Problem, Not the Solution: A Critical Appraisal of the European Regulation on CRAs” (October 2011) 11 Journal of Corporate Law Studies 395.
  • RH Kraakman, “Gatekeepers: The Anatomy of a Third-Party Enforcement Strategy” (Spring 1986) 2 Journal of Law, Economics, and Organization 53; A Higson, Corporate Financial Reporting: Theory & Practice (Sage, 2003), 159–88, citing C Humphrey, P Moizer and S Turley, The Expectation Gaps in the UK (ICAEW Research Board, 1992).
  • N Moloney, EC Securities Regulation (Oxford University Press, 2nd edn, 2008), 646–725, citing S Choi, “A Framework for the Regulation of Securities Markets Intermediaries” (Spring 2004) 1 Berkley Business Law Journal 45; JC Coffee Jr, Gatekeepers: The Professions and Corporate Governance (Oxford University Press, 2006), 15–77; JC Coffee Jr, “Gatekeeper Failure and Reform: The Challenge of Fashioning Relevant Reforms” in KJ Hopt, E Wymeersch, H Kanda and H Baum (eds), Corporate Governance in Context: Corporations, State, and Markets in Europe, Japan, and the US (Oxford University Press, 2005), 599–662.
  • Two of the Big Three CRAs are listed on the US stock market, while the third is a subsidiary of a large listed financial conglomerate located elsewhere; Partnoy, supra n 12, (2003) 65, (1999) 619.
  • The SEC introduced the concept as part of the amendments to the broker—dealer net capital rules under the Securities Exchange Act of 1934 via Amendments to Rule 15c3-1 and Adoption of Alternative Net Capital Requirement for Certain brokers and Dealers, Rel No 34–11497 (26 June 1975, 40 Fed Reg 29,795 (16 July 1975).
  • Credit Rating Agency Reform Act of 2006, Pub L 109–291, 120 Stat 1327 (2006), hereinafter referred to as CRRA 2006.
  • Partnoy (1999), supra n 12, 619, citing TL Friedman, “The News Hour with Jim Lehrer”, Arlington, PBS Television Broadcast (13 February 1996).
  • H Reisen and J von Maltzan, “Boom and Bust and Sovereign Ratings” (1999) 2 International Finance 273. It was observed that between July 1997 and November 1998 rating downgrades on Asian emerging markets were the largest and most abrupt in the modern era of sovereign credit ratings. Reisen and von Maltzan argued that, in principle, sovereign credit ratings downgrades contribute to the dynamics of financial crises during a bust phase in emerging markets lending.
  • Senate Committee on Government Affairs Hearings, “Rating the Raters: Enron and the CRAs” (2002). Here, Senator Joseph Lieberman asserted that the CRAs were very lax in their ratings for Enron. They failed to ask probing questions and chose merely to accept at face value whatever told to them by Enron officials.
  • “The Role of CRAs in the Capital Markets”, testimony of Sean J Egan, Managing Director, Egan-Jones Ratings Company before the Senate Committee on Banking, Housing and Urban Affairs, 8 February 2005. Egan asserted here that Enron, Parmalat and WorldCom were respectively rated investment grades four days, three months and 45 days before filing for bankruptcy.
  • supra n 5.
  • “A Review of Implementation of IOSCO Fundamentals of a Code of Conduct for CRAs” (IOSCO, 2007).
  • FCIC, supra n 7, 3.
  • US Senate Permanent Subcommittee on Investigations, supra n 40, 243.
  • T Donaldson “Ethical Blowback: The Missing Link to Understand and Respect Its Social Contract” (2007) 7 Corporate Governance 534.
  • C Hill, “Why Did Rating Agencies Do Such a Bad Job Rating Subprime Securities?” (2010) 71 University of Pittsburgh Law Review 585; J Hunt, “CRAs and the ‘Worldwide Credit Crisis': The Limits of Reputation, the Insufficiency of Reform, and a Proposal for Improvement” (2009) 1 Columbia Business Law Review 109.
  • RW Grant and R O Keohane, “Accountability and Abuses of Power in World Politics” (2005) 99 American Political Science Review 29.
  • KT Jackson, “Global Corporate Governance: Soft Law and Reputational Accountability” (2010) 35 Brook Journal of International Law 43.
  • H Lindgren, “Warren Buffett's Funny Take on the Financial Crisis”, New York Times, 15 March 2011, available at http://www.gthfloor.blogs.nytimes.com/2011/03/15/warren-buffetts-funnytake-on-the-financial-crisis (accessed on 22 December 2011).
  • AF Tuch, “Multiple Gatekeepers” (2010) 96 Virginia Law Review 1583.
  • Lawrence v Fox 20 NY 268 (Ct App 1859).
  • Glanzer v Shepard, 233 NY 236 (1922).
  • Quinn v McGraw-Hill Co 168 F 3d 331, at 335 (7th Cir 1999).
  • Partnoy, supra n 12: (1999) 619; (2003) 65.
  • supra n 21.
  • supra n 22.
  • In re National Century Financial Enterprises, Inc, Inv Litigation, 580 F Supp 2d 630 (SD Ohio 2008).
  • S Block-Lieb and E Janger, “Demand-Side Gatekeepers in the Market for Home Loans' (2009) 62 Temple Law Review 465; JC Hull, “The Credit Crunch of 2007: What Went Wrong? Why? What Lessons Can be Learned” (Summer 2009) 5(3) The Journal of Credit Risk 161; F Partnoy, “Overdependence on Credit Ratings Was a Primary Cause of the Crisis” in DD Evanoff, P Hartman and GG Kaufman (eds), The First Credit Market Turmoil of the 21st Century-Implications for Public Policy (World Scientific Publishing Co, 2009), 175–92; US Senate Permanent Subcommittee on Investigations, supra n 40, 243.
  • Winterbottom v Wright, 152 ER 402 (1842); JM Feinman, Professional Liability to Third Parties (American Bar Association, 2nd edn, 2007), 22–30, 45–75.
  • AR Pinto, “Control and Responsibility of CRAs in the US” (2006) 54 American Journal of Corporation Law, 341; A Unterman, “Destruction-Structured Finance and Credit Market Reform in the Bubble Era” (2009) 53 Hastings Business Law Journal 98; Glazer v Shephard, 233 NY 236, 135 NE 275 (1922); In First Equity Corp v Standard & Poor's Corp, 869 F 2d 175 (2nd Cir 1989). The court in In First Equity Corp v Standard & Poor's Corp declined to extend the duty of professional care standard, holding that a subscription agreement is inadequate to establish the necessary degree of privity, unlike the case of German laws; CR Hawkins, “Professional Negligence Liability of Public Accountants” (1958–59) 12 Vanderbilt Law Review 797.
  • Lasalle National Bank v Duf & Phelps Credit Rating Co, F Supp 1071 (SD NY 1996). The court, citing In re Time Warner Inc Securities Litigation, 794 F Supp 1252 (SD NY 1992), rejected negligent misrepresentation by members of the general public; Hedley Byrne & Co v Heller & Partners, 1964 App Cas 465; Smith v Bush, [1990] 1 App Cas 831 (1989).
  • National Century, supra n 67; S Rousseau, “Regulating CRAs after the Financial Crisis: The Long and Winding Road to Accountability”, Capital Markets Research Institute Research Paper (23 July 2009).
  • Restatement (Second) of Torts, s 552 (1977); JD Donaldson, “Anachronistic Revival of the ‘Citadel of Privity' for Independent Auditors: A Comment on Billy v Arthurs Young & Co” (1993) 46 Rutgers Law Review 465.
  • Feinman, supra n 69, 45; Credit Alliance Corp v Arthus Anderson & Co, NY 2d 536, 483 NE 2d 110, 493 NYS 2d 435 (1985).
  • Re Abu Dhabi Commercial Bank v Morgan Stanley & Co, Inc, Civ 7508 (SAS) No 08, 2009 WL 2828018, 11 (SD NY, 2009); Hunt, supra n 56, 109.
  • Abu Dhabi Commercial Bank, Ibid; The Committee of European Securities Regulators (CESRs), “Transparency of Corporate Bond, Structured Finance Product and Credit Derivatives Markets”, Consultation Paper CESR/08-1014 (2008); S Mathis, “The Role of CRAs in the Structured Finance Market”, 27 September 2007 Hearing Before the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprise of the House Committee on Financial Services, 110th Congress (2007).
  • Restatement (Second) of Torts, s 552 (1965); DA Ballam, “The Expanding Scope of the Tort of Negligent Misrepresentation: Are Publishers Next?” (1989) 22 Loyola of Los Angeles Law Review 761; In re Enron Corporation Securities Derivative & ERISA Litigation, 511 F Supp 2d 742 (SD Tex 2005).
  • A Goldstein, “Why ‘It Pays' to ‘Leave Home Without It': Examining the Legal Culpability of Credit Card Issuers Under Tort Principles of Products Liability” (2006) 4 University of Illinois Law Review 827.
  • Pinto, supra n 70, 341.
  • Hedley Bryne and Co Ltd v Heller and Partners Ltd (HL 1963); Caparo Industries plc v Dickman (HL 1990) [1990] 2 AC 605, [1990] 2 WLR 358; Henderson v Merrett Syndicates Ltd (HL 1994)[1995] 2 AC 145, [1994] 3 WLR 761. In Commissioners of Customs and Excise v Barclays Bank plc [2006] UKHL 28, [2007] 1 AC 181, [2006] 3 WLR 1 [2006] 4 All ER 256, the court affirmed the threefold test of reasonably foreseeable loss; sufficient proximity; and fair, just and reasonable grounds to impose such a duty of care.
  • C Hamilton, “So Sue Me, If You Can”, Financial World, September 2011, 41, available at http://www.financialworld.co.uk (accessed on 1 October 2011).
  • Casa di Risparmio dell Republica di San Marion SPA and Barclays Bank Ltd [2011] EWHC 484 (Comm).
  • Johansson, supra n 8, 1; PR Wood, Regulation of International Finance (Sweet & Maxwell, 2007), 115–21; Hamilton, supra n 81, 41.
  • JW Heggen, “Not Always the World's Shortest Editorial: Why Credit-Rating-Agency Speech is Sometimes Professional Speech” (2011) 96 IOWA Law Review 1745; Jaillet v Cashman, 235 NY 511, 139 NE 714.
  • Compuware Corporation v Moody's Investors Services, Inc, 499 F 3d 520 (2007).
  • New York Times Co v Sullivan, 376 US 254 (1964); In re Enron Corporation Securities Derivatives & ERISA Litigation, 511 F Supp 2d 742 (2005); L Freeman, “Who's Guarding the Gate? Credit Agency Liability as a ‘Control Person' in the Subprime Credit Crisis” (2009) 33 Vermont Law Review 585.
  • Jefferson County School District No R-1 v Moody's Investors' Services, Inc, 175 F 3d 848 (1999). Here, the plaintiff had alleged that Moody's unsolicited negative outlook rating had caused its borrowing cost to rise but this was dismissed by the court. This was distinguished In Commercial Financial Services, Inc v Arthur Anderson LLP, 94 P 3d 106 (Okla Civ App 2004), where the court held that the First Amendment protection does not apply when CRAs rate investment vehicles based on information supplied by the issuer and were paid a fee by the issuers as they owe a duty of care to provide accurate ratings.
  • P Haghshenas, “Obstacles to CRA First Amendment Defense in Light of Abu Dhabi' (2009–10) 8 First Amendment Law Review 452; The New York Times v Sullivan, 376 US 254 (1980); Cent Hudson Gas & Elec Corp v Pub Serv Comm'n, 447 US 557 (1980); and later Newby v Enron Corp, 511F Supp 2d 742 (SD Tex 2005). Such cases confirmed that First Amendment defence is qualified and not absolute, given the nature of the information provided in credit ratings. In dismissing the First Amendment claim, the courts went on to also reject the negligent misrepresentation claim, but cited in the process the 7 October 2002 Report of the Senate Committee on Givernmental Affairs on the Financial Oversight of Enron questioning whether the lack of accountability and CRAs' practical immunity to litigations and nonexistent oversight constitutes a major public concern.
  • Dun & Bradstreet, Inc v Greenmoss Builders, Inc, 472 US (1985); LaSalle National Bank, 951 F Supp 1071 (SD NY, 1996); American Savings Bank FSB v UBS Paine Webber Inc (In re Fitch), 330 F 3d 104 (2nd Cir 2003); In Commercial Financial Services, supra n 87; Abu Dhabi Commercial Bank, supra n 75. In all these cases the courts rejected CRAs' claims for First Amendment protection as, while the CRAs admitted they gave opinions, they claimed they had done so as paid professionals and that their ratings were provided in connection with a private placement to a select group of investors rather than to the general public; Crawford, supra n 31, 13.
  • National Century, supra n 67.
  • Newby v Enron Corp, 511 F Supp 2d (SD Tex 2005).
  • F Partnoy, “How and Why CRAs Are Not Like Other Gatekeepers”, University of san Diego School of Law Research Paper No 07–46 (May 2006).
  • Crawford, supra n 31, 13; R Jones, “The Need for a Standard of Care for CRAs” (2010) 1 William & Mary Business Law Review 201.
  • Abu Dhabi Commercial Bank, supra n 75; Hagshenas, supra n 88, 452.
  • National Century, supra n 67.
  • New York General Business Law, s 352-c (1996).
  • Assured Guarantee (UK) Ltd v JP Morgan Investment, 2011 NY Slip Op 9162, 2011 NY LEXIS 3658 (2011); Crawford, supra n 31, 13.
  • supra n 89.
  • J Zamansky and P Milford, “Litigation over Structured Notes is Surging” (August 2009) 13 Wall Street Lawyer 11.
  • J Feeley and Feeley and P Milford, “Goldman Sachs Wins Dismissal of Investor Lawsuit over Executive Pay Plan”, Bloomberg, 13 October 2011, available at http://www.bloomberg.com/news/print/2011-10-13/goldman-sachs-wins-dismissal-of-investor-lawsuit-over-executivepay-plan (accessed on 16 October 2011).
  • MA Akbeit, “Ratings Wars: The Lawsuit Filed by Calpers May be Able to Overcome Rating Agencies Traditional First Amendment Defense” (October 2009) 32 Los Angeles Lawyer 38.
  • TE Lynch, “Deeply and Persistently Conflicted: CRAs in the Current Regulatory Environment” (2009) 59 Case Western Reserve Law Review 227; Johansson, supra n 8, 1; R Lowenstein, “Triple-A Failure: The Ratings Game”, New York Times, 27 April 2008, available at http://www.nytimes.com/2008/04/27/magazine/27Credit.html (accessed on 15 September 2011).
  • NJ Carpenters Vacation Fund v Harborview Mortgage Loan Trust, 2008 WL2517997 (SD NY 3 June 2008); LP Ellsworth and KV Parapaiboon, “CRAs in the Spotlight: A New Casualty of the Mortgage Meltdown” (March/April 2009) 18 Business Law Today 1; Pate, supra n 40, 25.
  • Ohio Police & Fire Pension Fund, et al v Standard & Poor's Financial Services LLC, et al, Case No 2:09-cv-1054 (26 September 2011). Judge Graham allowed the CRA's motion to dismiss.
  • Ellsworth and Parabaiboon, supra n 103, 1.
  • Connecticut AG's Office, “AG Says Credit Rating Overhaul Will Save Towns and Citizens Millions on Interest Payments”, Press Release, 5 April 2010; M Melis, “Conn Settles Lawsuit with Credit Rating Firms”, Associated Press, 14 October 2011, available at http://www.finance.yahoo.com/news/Conn-settles-lawsuits-with-credit-rating-firms-3671779583.html (accessed on 15 October 2011).
  • Ohio Police & Fire Pension Fund et al v Standard & Poor's Financial Services LLC et al, US District Court, Southern District Ohio, No 09–01054; “Rating Agencies Win Dismissal of the Ohio Funds Lawsuit”, Reuters, 28 September 2011, available at http://www.businessinsuarnec.com/article/20110928/NEWS07/11092985&template (accessed on 29 September 2011).
  • JNJ Carpenters Health Fund v Novastar Mortgage, Inc, No 08 Civ 5310 (SD NY 31 March 2011).
  • Genesee County Employee Retirement System v Thornburg Securities Trust 2006-03, Bo CIV 09–0300, 2011 WL 5840482 (DNM 12 November 2011).
  • G Shorter and M Seitzinger, “CRAs and Their Regulation” Congressional Research Services (CRS) Report for the Congress, R40613 (3 September 2009), 11, available at http://www.crs.gov (accessed on 15 September 2011).
  • Exemplified in cases like County of Orange v McGraw-Hill Cos Inc, 245 BR 151 (CD Cal 1999) and in re Enron Corp Sec, Derivative & ERISA Litig, 511 F Supp 2d 742 (SD Tex 2005).
  • In Jailliet v Cashman, 189 NY S, 743 (Sup Ct 1921), the court held that, unless the errors were intentional and there was a contractual or fiduciary relationship, newspaper reporting is protected under the First Amendment. New York Times v Sullivan, 376 US 254 (1964) held established malice as the proper standard of claims.
  • T Naga, “CRAs and the First Amendment: Applying Constitutional Journalistic Protections to Subprime Mortgage Litigation” (2009) 95 Minnesota Law Review 140; LP Ellsworth and IK Bhabh, “A New Front in Subprime Litigation: Can Rating Agencies be Held Liable?” (19 August 2008), Jenner & Block LLP Securities Litigation, available at www.jenner.com/library/publications/705, accessed on 6 June 2012.
  • R Jones, “The Need for a Negligence Standard of Care for CRAs” (2010) 1 William & Mary Business Law Review 201; “CRAs Most Worried about Liability”, I Watch, 16 June 2008, available at http://www.iwatchnews.org/print/2645 (accessed on 15 September 2011).
  • MA Albert, “Rating Wars: The Lawsuit Filed by Calpers May Be Able to Overcome the Rating Agencies Traditional First Amendment Defense” (October 2009) 1 Los Angeles Law 38.
  • Stonebridge Investment Partners v Scientific-Atlanta, Inc, 552 US 148 (2008).
  • Re Moody's Corp Sec Ling, 559 F Supp 2d 493 (SD NY 2009).
  • Securities Exchange Act of 1934, s 21D(b)(2).
  • JE Bethel, A Ferrell and G Hu, “Legal and Economic Issues in Litigation Arising from the 2007–2008 Credit Crisis”, Harvard John M Olin Center for Law, Economics and Business Discussion Paper 10/2008 (2008).
  • DFA 2010, s 21D(b)(2)(B).
  • S 11(a) of the Securities Act of 1933.
  • In re Lehman Brothers Secs and ERISA Litig, 2010 WL 337997 (SD NY 2010).
  • Bethel et al, supra n 119.
  • Securities Exchange Act of 1934, s 10(b), especially Rule 10b-5.
  • TM Sullivan, “Federal Pre-emption and the Rating Agencies: Eliminating State Law Liability to Promote Quality Ratings” (2009–10) 94 Minnesota Law Review 2136; Partnoy, supra n 68, 175.
  • DFA 2010, s 939G.
  • Disclosure Release No 33–9070 (2009).
  • In Milkovich v Lorain Journal Co, 497 US 1(1990), the court held that the presence of a disclaimer does not necessarily make it legally binding; New Jersey Vacation Fund v RBS Group, PLC, 2010 WL 1172694 (SD NY 2010).
  • G Husisian, “What Standard of Care Should Govern the World's Shortest Editorial?: An Analysis of Bond Rating Agency Liability” (1990) 75 Cornell Law Review 411.
  • JC Coffee Jr, “The Role and Impact of CRAs on the Subprime Credit Markets”, written testimony before the Senate Banking Committee, 26 September 2007, available at http://www.banking.senate.gov/public/index.cfm?Fuseaction=Hearings&hearing_ID=973eab2d-f498-412b-86f3-aee6a4b147f03 (accessed on 22 December 2011).
  • Ss 2(a)(11), 7 and 11(a)(5) of the Securites Exchange Act of 1933.
  • Hill, supra n 10, 1; Lopin v Goldman Sachs Group, Inc, 506 F Supp 2d 221 (SD NY 2006).
  • “Letter to Elizabeth Murphy SEC Secretary: Comments of the Committee on Securities regulation on Proposed Amendments to Rules relating to Credit Ratings Disclosure”, NYC Bar, 17 December 2009.
  • PL Bonewitz, “Implications of Reputation Economics on Regulatory Reform of the Credit Rating Industry” (2010) 1 William & Mary Business Law Review 391.
  • Lowe v SEC, 472 US 181, 231–32 (1985); D Halberstam, “Commercial Speech, Professional Speech, and the Constitutional Status of Social Institutions” (April 1999) 147 University of Pennsylvania Law Review 771.
  • Standard & Poor, “Standard & Poor's Ratings Services Terms and Conditions Applicable To Ratings”, available at http://www.standardandpoors.com (accessed on 10 March 2012).
  • Hamilton, supra n 81, 41; Johansson, supra n 8, 1; Wood, supra n 83, 115.
  • Ibid.
  • EUCRA, supra n 22; Moloney, supra n 43, 646.
  • Preamble to EUCRA 2009, para 2.
  • Regulation (EU) No 513/2011 of the European Parliament and of the Council of 11 May 2011 Amending Regulation (EC) No 1060/2009 on CRAs, hereinafter referred to as EUCRA 2011.
  • Art 20 of EUCRA 2009.
  • Art 24(1) of EUCRA 2009.
  • The list of infringements referred to in Arts 24 and 36a(1) of EUCRA 2011 is located in Annex III to EUCRA 2009.
  • Commission Delegated Regulation (EU) No 272/2012 of 7 February 2012 supplementing Regulation (EC) No 1060/2009 of the European Parliament and of the Council with regards to fees charged by the ESMA to CRAs.
  • EUCRA 2009, Preamble, para 69.
  • EU Parliament, “Resolution of 8 June 2011 on CRAs: Future Perspectives”, p7_TA(2011)0258.
  • EU Commission, “Public Consultation on CRAs” (2010), available at http://ec.eiropa.eu/internal_market/consultations/docs/2010/cra/cpaper_en.pdf (accessed on 5 April 2012).
  • Proposal for a Regulation of the European Parliament and of the Council Amending Regulation (EC) No 1060/2009 on CRAs, proposed insertion of Article 35a(1–3) on Civil Liability.
  • Proposal for a Regulation of the European Parliament and of the Council Amending Regulation (EC) No 1060/2009 on CRAs, proposed insertion of Article 35a(4) on Civil Liability.
  • Proposal for a Regulation of the European Parliament and of the Council Amending Regulation (EC), No 1060/2009 on CRAs, proposed insertion of Article 35a(5) on Civil Liability.
  • EU Commission's Guidance Communication C(2009) on Article 102 of the Treaty on the Functioning of the EU (TFEU).
  • EU Commission's Guidance Communication, “Enforcement Priorities in Applying Article 82 of the EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings”, C(2009) 864 final, para 12.
  • Art 17 of Council Regulation 1/2003 of 16 December 2002 pertaining to implementation of the rules on competition stipulated in Articles 81 & 82 of the Treaty, [2003] OJ L1; A Jones and B Sufrin, EC Competition Law (Oxford University Press, 3rd edn, 2008), 204–433.
  • Arts 23 and 24 of Regulation 1/2003, Ibid.
  • Art 23(2) of Regulation 1/2003, Ibid.
  • EU Commission, “Commission Wants Better Quality Credit Ratings”, Press Release, 15 November 2011, available at http://ec.europa.eu/internal_market/securities/agencies/index_en.htm (accessed on 11 March 2011.
  • M Hal, “EU Competition Law in the Pharmaceutical Sector: What Has Happened Since 2009?” (2011) 1 International Committee: American Bar Association Section of Antitrust Law 1.
  • D Geraldin and D Henry, “The EC Fining Policy for Violations of Competition Law: An Empirical View of the Commission Decisional Practice and the Community Courts' Judgments”, The Global Competition Law Centre Working Paper 03/05 (2005).
  • Reynolds v Times Newspapers [2001] 2 AC 127.
  • Macintosh v Dun [1908] AC 390 (PC).
  • Jameel v Wall Street Journal Europe SPRL [2006] UKHL, [2006] 3 WLR 642.
  • G Tichy, “CRAs: Part of the Solution or Part of the Problems?” (2011) 5 Intereconomics 232.
  • K Scannell, “SEC Considers Case against Egan-Jones”, Financial Times, 19 April 2012, available at http://www.ft.com/intl/cms/s/0/47756318-8a4b-11e1-93c9-00144feab49a.html (accessed on 21 April 2012).

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