Complaint | Varga et al v. McGraw Hill Financial Inc et al - Moody's, S&P and Fitch Sued Over Fraud in Bear Stearns Case - “Lord help our fucking scam”
Direct from the emails:
“It could be structured by cows and we would rate it”
“[Our] model def[initely] does not capture half of the ris[k]”
“we sold our soul to the devil for revenue”
“[d]on’t kill the golden goose”
“[l]et’s hope we are all wealthy and retired by the time this house of cards falters”
“Lord help our fucking scam”
FILED: NEW YORK COUNTY CLERK 11/11/2013 NYSCEF DOC. NO. 24 INDEX NO. 652410/2013 RECEIVED NYSCEF: 11/11/2013 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK -------------------------------------------------------------------x GEOFFREY VARGA and MARK LONGBOTTOM, as Joint Official Liquidators of Bear Stearns HighGrade Structured Credit Strategies (Overseas) Ltd. and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) Ltd., Plaintiffs, against McGRAW HILL FINANCIAL, INC. (f/k/a THE McGRAW-HILL COMPANIES, INC. and d/b/a STANDARD & POOR'S RATING SERVICES), STANDARD & POOR'S FINANCIAL SERVICES LLC, MOODY"S CORPORATION, MOODY"S INVESTORS SERVICE, INC., MOODY"S INVESTORS SERVICE LIMITED, FITCH GROUP, INC., FITCH RATINGS, INC. (f/k/a FITCH, INC.) and FITCH RATINGS LIMITED, Defendants, BEAR STEARNS HIGH-GRADE STRUCTURED CREDIT STRATEGIES MASTER FUND, LTD., and BEAR STEARNS HIGH-GRADE STRUCTURED CREDIT STRATEGIES ENHANCED LEVERAGE MASTER FUND, LTD., Nominal Defendants. -------------------------------------------------------------------x COMPLAINT Excerpt: Plaintiffs, Geoffrey Varga and Mark Longbottom, as Joint Official Liquidators (the “Liquidators”) of Bear Stearns High-Grade Structured Credit Strategies (Overseas) Ltd. (In Liquidation) (the “High-Grade Overseas Fund”) and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) Ltd. (In Liquidation) (the “High-Grade Enhanced Overseas Fund,” and together with the High-Grade Overseas Fund, the “Overseas Funds”), by their attorneys, Reed Smith LLP, as and for their Complaint against the above-named Defendants, respectfully allege as follows: I. PRELIMINARY STATEMENT 1. “It could be structured by cows and we would rate it,” crowed an S&P employee to a co-worker in a text message. “[Our] model def[initely] does not capture half of the ris[k],” he conceded. Quite matter-of-factly, a Moody’s employee admitted in an internal document that “we sold our soul to the devil for revenue.” Nonetheless, the Defendants’ mission, as stated in an article and an e-mail, was clear — “[d]on’t kill the golden goose,” and “[l]et’s hope we are all wealthy and retired by the time this house of cards falters.” Indeed, recognizing the full breadth and the implications of their wrongdoing, an S&P employee pleaded in an e-mail: “Lord help our f***ing scam” (expletive partially redacted). 2. These quotes are not the punch line to a bad joke; rather, they are statements made by representatives of Defendants — each a nationally recognized statistical rating organization (together, the “Rating Agencies”) — that are the razor-sharp tip of an iceberg of evidence that, at the same time these Rating Agencies were issuing their top, virtually risk-free ratings on numerous complex securities, each of these very same Rating Agencies (but not the investing public) knew the ratings were false, and that the collapse of the “house of cards” created by their fraudulent ratings was imminent. 3. This action is brought by victims of this admitted scam perpetrated by each of the Rating Agencies, and seeks to recover damages in connection with more than $1 billion of losses sustained by the Overseas Funds and the Master Funds (defined below, and referred to collectively as “the “Funds”) they “fed” into, as a direct and proximate result of the serial fraudulent misconduct of the Rating Agencies in assigning ratings which led the Funds to believe the securities at issue were far less risky than the Rating Agencies knew them to be. 4. Indeed, as their very names suggest, the Funds were intended to be “high-grade” funds that were structured to invest primarily in the highest quality securities. Specifically, the Funds’ stated strategy was to be invested in a portfolio of securities of which at least 90% had the highest rating available, namely “AAA,” “AA,” or “AA-,” or equivalent ratings — meaning that each security was of the highest credit quality, and the risk of its default was extremely low. [...]