Judge Limits Credit Firms' 1st-Amendment Defense

Ruling in Cheyne Finance Case Lifts Protection for Ratings Not Made Public; Moody's, McGraw-Hill Stocks Fal

Shares in two companies that own credit-rating firms, Moody's Corp. and McGraw-Hill Cos., declined on Thursday in reaction to a court decision that rejected the companies' longtime claim that the First Amendment protected them from lawsuits.

The ruling is expected to spur more lawsuits and could apply to structured investment vehicles once valued at as much as $400 billion.

McGraw-Hill, which owns Standard & Poor's, fell 10%, and Moody's Corp., parent of Moody's Investors Service, fell 7.1% in New York Stock Exchange composite trading.

The firms had long argued that their ratings of securities were constitutionally protected opinion. But U.S. District Judge Shira Scheindlin ruled on Wednesday in a 68-page opinion that the ratings of certain securities -- those that were distributed to a limited number of investors -- don't deserve the same free-speech protection as more general ratings of corporate bonds that were widely disseminated.

The judge's decision is one of the first to interpret the extent to which the firms can expect First Amendment protection for their ratings of certain securities, which have been the focus of much litigation since the credit crisis. "Her decision breaks new ground," says New York attorney David Grais, who represents investors in suits alleging losses from asset-backed securities.

Judge Scheindlin's ruling is binding only on cases filed in the Southern District of New York, but it could influence other judges, attorneys say, because the judge presides over many securities suits and is highly regarded.

http://online.wsj.com/article/SB125201681110884761.html
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Judge Limits Credit Firms' 1st-Amendment Defense

Judge Limits Credit Firms' 1st-Amendment Defense

Anarcho-Capitalist Categorical Imperatives

Via AnCaps: Law & Enforced Unnatural Order