Under Attack, Credit Raters Turn to the First Amendment

Under Attack, Credit Raters Turn to the First Amendment

Editor's note: This is the first of three articles by the Investigative Fund on the credit rating companies.

For two decades, the nation's top credit rating agencies have managed to fend off a crackdown from Washington by relying on a surprising ally - the First Amendment.

Despite their key role in the most recent economic calamity, the three big bond raters--Standard & Poor's, Moody's and Fitch--seem poised to do it again. With help from two of the most storied constitutional lawyers in the country, the raters have successfully argued that when they make a mistake -- say, awarding the top triple-A grade to a multibillion-dollar bundle of bonds that later default -- they cannot be sued or held accountable.

That's because ratings are opinions, the agencies claim, protected by the constitutional right to free speech.

A Huffington Post Investigative Fund examination of court filings, congressional testimony and Securities and Exchange Commission documents illustrates how the companies have repeatedly invoked that right to free speech to dodge government regulation and court action. The raters have never lost a courtroom battle to a disgruntled investor, not even in the Enron scandal. Enron enjoyed high grades on its bonds just four days before it filed for bankruptcy in 2001.

Critics of the rating companies argue that they are misusing the Bill of Rights to protect a flawed but highly profitable business. ....