Free Speech Defense Fails for Ratings Firms in Suit Over Collapsed Investment Vehicle

, The American Lawyer

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Credit-rating agencies have long turned to the First Amendment to fend off suits over promoting securities that turn out to be not so credit worthy. But that defense didn't completely hold up Wednesday when a federal judge ruled the protection does not apply when a "rating agency has disseminated their ratings to a select group of investors rather than to the public at large." The case involves a $5.86 billion structured investment vehicle that collapsed when the true value of the asset behind its notes became clear.

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