Rating Agencies Win Another in Lehman Collapse

Back in 2009, after the collapse of Lehman Brothers in the banking crisis, small investor Ron Grassi sued the nation’s three largest bond rating agencies saying he relied on their faulty assessment and lost his shirt in Lehman corporate bonds.

This week Grassi lost again. The 9th U.S. Circuit Court of Appeals upheld dismissal of his lawsuit in Sacramento federal court, saying the complaint was nothing “more than labels and conclusions.”  Wednesday’s decision applies only to the Grassi case as a nonprecedential order.

Grassi, a retired lawyer in family law in Tahoe City, Calif, lost his $40,000 investment in Lehman Brothers corporate bonds when the investment bank collapsed.

He decided to take a legal long-shot and sued the three rating agencies, Standard & Poor’s, Moody’s and Fitch, contending he relied on the ratings.  He alleged the rating agencies negligently and intentionally misrepresented the investment quality of the bonds.

He was not alone.  By 2010 more than a dozen lawsuits were pending against the rating agencies with much the same allegations and most had been dismissed.

Although last year, a federal court in Australia held that Standard & Poor’s may owe a duty of care for investors, in a dispute over structured financial debt products.  The case was Bathurst Regional Council v. Local Government Financial Services.

That’s little help for Grassi.  The unpublished order says he failed to meet the pleading standards of laying out particular circumstances that might constitute a fraud by the rating agencies.

Case:  Grassi v. Moody’s Investors Services, No. 11-17455



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