In re Moody's Corporation Securities Litigation


The judge in this case denied class certification and granted the defendant’s motion for summary judgment, allowing Moody’s Corporation to settle on very favorable terms.

Retained by Sullivan & Cromwell

Defense counsel retained Cornerstone Research and Professor René Stulz of The Ohio State University to analyze issues relating to summary judgment, and previously to examine questions pertaining to class certification.

The U.S. District Court for the Southern District of New York issued a ruling in this case granting the motion of the defendant, Moody’s Corporation, for summary judgment. The decision came after the same court had denied class certification in 2011. Following the judge’s recent decision, Moody’s settled the case on advantageous terms.

In his earlier decision, the judge remarked that “Plaintiffs do not offer any evidence rebutting Dr. Stulz’s conclusion.”

The plaintiffs alleged that Moody’s Investors Service Inc. made material misrepresentations concerning its rating independence and methodologies for structured finance securities between February 2006 and October 2007, which caused its stock price to be inflated.

Using an event study, Professor Stulz opined on loss causation issues by examining the information mix and the stock price movement. Professor Stulz further rebutted the analysis of the plaintiffs’ expert, and addressed the economic issues pertaining to the plaintiffs’ “materialization of the risk” theory. In a decision that mirrored Professor Stulz’s analysis, Judge George B. Daniels stated that “Plaintiffs cannot demonstrate that the loss-causing events were foreseeable from Moody’s alleged misrepresentations and/or revealed new information,” and therefore, “Plaintiffs fail to establish a connection between the loss-causing events and the actual share price declines as required to survive summary judgment with respect to loss causation.”

Previously, Judge Daniels had denied the plaintiffs’ motion for class certification, relying on Professor Stulz’s findings and event study analysis. In his earlier decision, the judge remarked that “Plaintiffs do not offer any evidence rebutting Dr. Stulz’s conclusion.” The court also pointed out that the defendant “successfully rebutted the fraud on the market presumption,” and the plaintiffs’ expert failed to refute the defendant’s demonstration that “there is no link between the price of Moody’s stock and any of the alleged misrepresentations.”

René M. Stulz

Everett D. Reese Chair of Banking and Monetary Economics,
Director, Dice Center for Research in Financial Economics,
Fisher College of Business,
The Ohio State University