In an opinion Friday, Judge Scheindlin denied Moody’s and S&P’s motion for summary judgment in a case accusing them of fraud in connection with their rating of a failed structure finance vehicle.  She rejected their argument that credit ratings are merely subjective opinions: 

While ratings are not objectively measurable statements of fact, neither are they mere puffery or unsupportable statements belief akin to the opinion that one type of cuisine is preferable to another. Ratings should best be understood as fact-based opinions. When a rating agency issues a rating, it is not merely a statement of that agency’s unsupported belief, but rather a statement that the rating agency has analyzed data, conducted an assessment, and reached a fact-based conclusion as to creditworthiness. If a rating agency knowingly issues a rating that is either unsupported by reasoned analysis or without a factual foundation, it is stating a fact-based opinion that it does not believe to be true. 

She thus concluded that the rating agencies could be “liable for fraud if the ratings both misstated the opinions or beliefs held by the Rating Agencies and were false or misleading with respect to the underlying subject matter they address.”  Judge Scheindlin determined there were fact questions for trial under that standard based on internal emails and instant messages expressing concern with the lack of data to properly rate the transaction, and expressing concern that the ratings methodology did not capture the risk of the transaction.  (H/T Reuters.)