A Research On Civil Liability Of Credit Rating Agencies

Credit rating agencies are called"Guardians"of investors or capital market"gatekeepers", but their performances in subprime crisis have hardly been accepted by the public, even their unrealistically high ratings have considered as one of causes of the crisis. Therefore, rating agencies should be responsible for great loss. But we must face the fact: responsibilities of criminal and administrative that rating agencies should be taken are fully prescribed in law in many countries while there is little civil liability.The paper chiefly analyses legal relationship among rating agencies, rating objects and public investors before the court pursue legal action against misleading or misrepresentation of rating agencies. (1) On the basis of having rating in their own name and undertaking the responsibility for rating objects, rating agencies have a legal relationship of work contract with rating objects. (2) Besides, there is a reliance relationship between rating agencies and public investors because rating agencies must to be independent and to meet an obligation of duty of care instead of damaging public investors'reliance interest. The paper chiefly analyses the present situation of legal responsibility through County of Orange v. Standard & Poor's and Jefferson County School District v. Moody's in U.S.: (1) public investors barely reach any agreement to lodge a complaint for lawsuit cost and"free ride". (2) Furthermore, public investors will confront many obstacles if they claim responsibility of breach of contract because of the 1st Amendment. Therefore, to claim reliance interest is a better way to solve lawsuit cost and other problems.Rating agencies should take the responsibility of breach of contract for rating objects. However, (1) how many public investors do rating agencies should take tort liability for? Public investors should be the investors in primary market, considering of the disadvantage of opinion of"a liability in an indeterminate amount for an indeterminate time to an indeterminate class". (2) In addition, fault liability should be suitable for principle of tort liability. (3) Fraud-on-the-market Theory should be an effective method to judge whether there is causality or not, namely, reliance may well be presumed if the information were"significant", therefore there is causality between false statement of defendant and loss of complaint.