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UPDATE: Pension Fund Sues Moody's Corp Over Subprime Ratings

September 26, 2007: 06:52 PM EST

(Adds Moody's spokesman not having immediate comment in last paragraph.)

By Chad Bray


NEW YORK -(Dow Jones)- A pension fund sued Moody's Corp. (MCO) on Wednesday, alleging the credit-ratings agency misrepresented or failed to disclose that it had assigned "excessively high ratings to bonds backed by risky subprime mortgages."

In a lawsuit filed in federal court in Manhattan, the Teamsters Local 282 Pension Trust Fund alleged that the New York company's ratings of bonds backed by subprime mortgages - including bonds packaged as collateralized debt obligations - were materially misleading to investors concerning the quality and relative risk of those investments.

"Moreover, even as a downturn in the housing market caused rising delinquencies of the subprime mortgages underlying such bonds, Moody's maintained its excessively high ratings, rather than downgrade the bonds to reflect the true risk of owning subprime-mortgage-backed debt instruments," the lawsuit says.

On July 11, Moody's announced it was downgrading 399 mortgage-backed securities issued in 2006 and reviewing an additional 32 for downgrades, representing about $5.2 billion of bonds, according to the lawsuit. The company also disclosed it had downgraded 52 bonds issued in 2005, according to the complaint.

Moody's stock price traded below $45 a share in August following the disclosures - down from trading above $60 a share in July and $70 a share in June, according to the lawsuit. Shares of Moody's closed up $1.32, or 2.9%, at $ 47.39 on Wednesday.

The lawsuit is seeking class-action status for all purchasers of Moody's shares from Oct. 25, 2006, to July 10, 2007.

Linda S. Huber, the company's chief financial officer, also is named as a defendant in the case.

Earlier Wednesday, Securities and Exchange Commission Chairman Christopher Cox told a Senate committee that the regulator was probing whether credit-rating agencies, including Moody's and McGraw-Hill Cos.' (MHP) Standard & Poor's unit, followed proper procedures in rating mortgage-backed securities.

A Moody's spokesman didn't immediately have a comment when reached late Wednesday.

-By Chad Bray, Dow Jones Newswires; 212-227-2017;

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