In re Moody's Corp. Securities Litigation
274 F.R.D. 480
S.D.N.Y.2011Background
- Lead Plaintiffs allege 10(b) and 20(a) securities fraud by Moody’s Investors Services regarding issuer-pays model conflicts and consideration of originator standards in ratings.
- Class Period runs Feb 3, 2006 through Oct 24, 2007; certification sought for Moody’s stock purchasers.
- Moody’s describes independence from issuers; plaintiffs allege ratings were inflated to secure issuer business.
- Issuer-pays model allegedly creates conflict of interest; alleged misrepresentations regarding rating methodologies and independence.
- Regulatory news in late 2007-2008 (and prior SEC reports) cited as contexts; alleged corrective disclosures cited include Aug 20, 2007 and other dates.
- Court denies motion for class certification, finding failure to prove predominance and lack of class-wide reliance under Basic and Affiliated Ute frameworks.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the proposed class satisfies Rule 23 Requirements | Adequacy, predominance shown by common questions | Defendants contest adequacy and predominance | Class not certified due to lack of predominance and adequacy |
| Whether reliance can be established class-wide | Basic fraud-on-the-market and Affiliated Ute presumptions apply | Presumptions rebutted by lack of price impact and omissions | Predominance undermined; presuppositions not upheld for class-wide reliance |
| Whether fraud-on-the-market presumption applies given market knowledge | Market unaware Moody’s was not independent; misstatements affected price | Market knowledge of conflicts precludes misstatement impact | Presumption rebutted; no period with statistically significant positive abnormal return within class period |
| Whether Affiliated Ute reliance applies to omissions | Omissions alleged related to rating methodology | Omissions insufficient to support Affiliated Ute; misrepresentations predominate | Affiliated Ute presumption not applicable; omissions not basis for class-wide reliance |
Key Cases Cited
- Salomon Analyst Metromedia, 544 F.3d 474 (2d Cir. 2008) (fraud-on-the-market presumption requires material misrepresentation in an efficient market)
- Basic v. Levinson, 485 U.S. 224 (U.S. 1988) (establishes fraud-on-the-market theory for presumption of reliance)
- In re Omnicom Group, Inc. Securities Litigation, 597 F.3d 501 (2d Cir. 2010) (news articles not a corrective disclosure absent new facts about the fraud)
- In re Flag Telecom Holdings, Ltd. Securities Litigation, 574 F.3d 29 (2d Cir. 2009) (limits on loss causation and reliance assumptions at class certification)