In re Lehman Brothers Mortgage-Backed Securities Litigation
United States Court of Appeals for the Second Circuit
650 F.3d 167 (2011)
Purchasers of Lehman Brothers mortgage pass-through certificates (plaintiffs) sued rating agencies Standard & Poor's, Moody's, and Fitch (defendants), which had given many of the certificates AAA ratings, alleging the agencies were "underwriters" of the offerings and thus strictly liable under §11 of the Securities Act for false statements in Lehman's registration statements; the plaintiffs alleged issuing banks shopped for favorable ratings by playing agencies against each other, with agencies actively helping structure loan pools to fit desired ratings and even sharing their rating models with banks, while failing to update those models to reflect increased subprime mortgages and weaker lending standards. The district court dismissed the complaint, and the plaintiffs appealed.
Whether credit rating agencies and other entities that merely provide services facilitating a securities offering, including helping structure the underlying asset pools, qualify as underwriters of that offering.