Credit rating agency Fitch Ratings faces a lawsuit in the Cayman Islands over allegedly false ratings assigned to structured credit investments linked to failed Bear Stearns funds.
Singapore investment firm Equite Capital Pte Ltd filed a writ of summons on 19 June in the Grand Court Financial Services Division.
The case names both Fitch Ratings Inc and Fitch Ratings Ltd, targeting the US and UK entities of the rating agency, respectively.
Bear Stearns funds
The case relates to the Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd and the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund Ltd, both now dissolved.
These funds are referred to in court documents as the ‘Cayman Funds’.
Equite Capital is pursuing the action on behalf of itself and other investors who acquired interests in synthetic collateralised debt obligations where Cayman Islands exempted limited companies were assigned credit ratings of AAA, AA+, AA or AA- by Fitch.
The lawsuit centres on rating models known as ‘VECTOR 2.2’, ‘VECTOR 3.0’, and ‘VECTOR 3.1’ that Fitch used to assign credit ratings to the financial instruments.
Court documents indicate these models were used to rate investments described as “the Claim SCDOs”.
The case covers a specific time period, with the legal action focusing on alleged false representations made after 15 April, 2005.
Claims against Fitch
Equite Capital is seeking declarations, damages and costs from Fitch on multiple grounds.
The primary claims include alleged deceit in making representations when assigning credit ratings to the investments, knowing these were false or lacking reasonable grounds for the representations.
The lawsuit also alleges conspiracy by Fitch, claiming the rating agency intended to injure the plaintiff and group members by unlawful means.
Additional claims include allegations that Fitch caused loss by unlawful means while making rating representations with knowledge of their falsity.
Court process
Fitch Ratings has 28 days from service of the writ to respond to the court.
The defendants must either satisfy the claim or return an acknowledgement of service stating whether they intend to contest the proceedings.
If Fitch fails to respond within the specified timeframe, Equite Capital may proceed with the action and seek judgment without further notice to the defendants.
The case has been filed by Nelsons Legal, whose offices are located at The Grand Pavilion, West Bay Road, Grand Cayman.
The writ notes it may not be served later than four calendar months from the date of issue unless renewed by court order.
Fitch Ratings Inc is listed as a Delaware corporation with offices at Corporation Trust Center, Wilmington, while Fitch Ratings Ltd operates from North Colonnade, London.
