The First Amendment should not protect credit rating agencies for their grossly inaccurate ratings of residential mortgage-backed securities. The rating agencies played a significant role in the subprime mortgage crash and resulting financial market crisis. In past litigation, rating agencies have been successful in defending lawsuits involving claims of inaccurate ratings using a First Amendment shield. Courts have typically used the actual malice standard described in New York Times v. Sullivan, which is difficult for plaintiffs to overcome. However, three major characteristics of the agencies distinguish them from the traditional press and render the First Amendment inapplicable to cases involving their ratings. The agencies receive compensation from the issuers, are actively involved in the structuring of transactions, and their ratings are more akin to certifications than opinions.
Courts should refuse to afford rating agencies automatic First Amendment protection in future litigation related to the inaccurate rating of residential mortgage-backed securities. Instead, courts should use a three-factor test to determine if an agency actually qualifies for constitutional protection. The first two factors comprise the In re Fitch standard, rating agent compensation and role in structuring the transaction at issue, and the third factor addresses whether a rating is a “certification” or “benchmark” versus merely an opinion. The judicial system must hold rating agencies accountable for their role in the subprime mortgage crisis. Moody’s, S&P, and Fitch should not escape liability for the irreparable damage they caused millions of investors and the global financial market.