Nice dodge for ratings agencies - the First Amendment

When a company is in legal trouble and every avenue of defense looks likely to fail, lawyers often turn to the novel and unexpected. Moody's (MCO) and S&P have been up against criticism that they "sold" good ratings to firms covering financial instruments that did not deserve them

According to The Wall Street Journal, the courts and critics of the firms have to answer a thorny question. The paper writes, "Are the ratings that the services give securities -- ranging from triple-A to junk -- simply 'opinion' that is protected by the First Amendment?"

Judges will have to determine if ratings are "private commercial transactions," which means they are unlikely to be covered under the Constitution.

The ratings agencies' defense may be unconventional, but it is persuasive. First Amendment rights are very broad as is the term "opinion." The fact that an opinion is paid for and given in private may not negate that it is a right the credit agencies have in the normal course of business.

Sometimes the most persuasive legal arguments are the most unexpected.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

Add a Comment

*0 / 3000 Character Maximum