A U.S. federal judge has ruled that Morgan Stanley and two credit-rating agencies will have to defend themselves again fraud charges in a class-action lawsuit that charges them with hiding the risks of an investment linked to subprime mortgages, which collapsed.
U.S. District Judge Shira Scheindlin rejected efforts by Morgan Stanley, Moody’s Investors Service and Standard & Poor’s to dismiss fraud claims brought by the plaintiffs, Abu Dhabi Commercial Bank and King County in Washington State.
She did, however, dismiss claims against Bank of New York Mellon Corp.
Scheindlin’s ruling could affect other lawsuits brought by pension funds and other investors, seeking to hold banks and credit raters responsible for “hyping the value of complex debt to win fees and causing investor losses as the debt collapsed,” according to Reuters. .
This case concerns the Cheyne Structured Investment Vehicle (SIV), which went bankrupt in August 2007. (SIVs are packages of loans and debt, including collateralized debt obligations.)
In the New York case, the plaintiffs claim Morgan Stanley wrongly marketed Cheyne as a high-quality investment, and that the rating agencies assigned improperly high ratings.