Federal and state shareholder derivative actions were brought for the benefit of Moody’s Corporation (“Moody’s” or the Company) against certain executive officers and directors of the Company. Plaintiffs’ claims included breach of fiduciary duty, gross mismanagement, abuse of control, unjust enrichment, violations of the federal securities laws, waste of corporate assets and constructive fraud.
Moody’s is one of the leading credit rating agencies in the world. Investors depend on Moody’s independence and objectivity throughout the credit rating process, and without them, Moody’s ratings would be rendered worthless against an entity’s own (presumably biased) claims about the value of their securities and creditworthiness of their business operations and prospects. As such, Moody’s depends for its very existence on its reputation for independent and non-bias analysis of these entities. Its famous AAA (or “triple-A”) rating on a debt security has been the gold standard of safety and creditworthiness for generations.
Specifically, the derivative actions alleged Defendants steered the Company in a “race to the bottom,” at the behest of securities issuers, to consistently rate securities, particularly asset-backed securities known as “structured finance” securities, far more favorably than they deserved, including thousands which received the coveted triple-A rating. As a result of Defendants’ misconduct, trillions of dollars of highly-risky securities were sold to investors. Beginning in late 2007, Moody’s was forced to “come clean” and downgrade most of these securities. The rest went into default, and the Defendants’ actions had a hugely magnified effect on the rest of the U.S. financial system, besides causing irreparable damage to the Company’s reputation. When the truth was revealed, Moody’s share price plummeted from its former value. The Company’s executives were required to testify before Congress and provide evidence to various regulatory agencies and state attorneys general. Securities lawsuits against, and regulatory investigations of, Moody’s were commenced across the country.
Saxena White P.A. litigated the claims as Co-Lead Counsel for four years before the parties entered into a settlement agreement on May 17, 2012. As consideration for the Settlement, the parties agreed that Moody’s has and would implement governance reforms, internal control, risk management and compliance provisions which included the adoption of an integrated system of oversight consistent with recognized best practices recommended by Plaintiffs’ experts. On July 23, 2012, the Court preliminarily approved the settlement, and then on September 6, 2012, entered a final judgment finding the settlement to be fair, reasonable and adequate in all respects.