Complaint | Varga et al v. McGraw Hill Financial Inc et al - Moody's, S&P and Fitch Sued Over Fraud in Bear Stearns Case - “Lord help our fucking scam”

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Complaint | Varga et al v. McGraw Hill Financial Inc et al – Moody’s, S&P and Fitch Sued Over Fraud in Bear Stearns Case – “Lord help our fucking scam”

Complaint | Varga et al v. McGraw Hill Financial Inc et al – Moody’s, S&P and Fitch Sued Over Fraud in Bear Stearns Case – “Lord help our fucking scam”

Direct from the emails:

“It could be structured by cows and we would rate it”

“[Our] model def[initely] does not capture half of the ris[k]”

“we sold our soul to the devil for revenue”

“[d]on’t kill the golden goose”

“[l]et’s hope we are all wealthy and retired by the time this house of cards falters”

“Lord help our fucking scam”

FILED: NEW YORK COUNTY CLERK 11/11/2013
NYSCEF DOC. NO. 24

INDEX NO. 652410/2013
RECEIVED NYSCEF: 11/11/2013

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
——————————————————————-x
GEOFFREY VARGA and MARK LONGBOTTOM,
as Joint Official Liquidators of Bear Stearns HighGrade Structured Credit Strategies (Overseas) Ltd. and
Bear Stearns High-Grade Structured Credit Strategies
Enhanced Leverage (Overseas) Ltd.,

Plaintiffs,
against

McGRAW HILL FINANCIAL, INC. (f/k/a THE
McGRAW-HILL COMPANIES, INC. and d/b/a
STANDARD & POOR’S RATING SERVICES),
STANDARD & POOR’S FINANCIAL SERVICES
LLC, MOODY”S CORPORATION, MOODY”S
INVESTORS SERVICE, INC., MOODY”S
INVESTORS SERVICE LIMITED, FITCH GROUP,
INC., FITCH RATINGS, INC. (f/k/a FITCH, INC.)
and FITCH RATINGS LIMITED,
Defendants,
BEAR STEARNS HIGH-GRADE STRUCTURED
CREDIT STRATEGIES MASTER FUND, LTD., and
BEAR STEARNS HIGH-GRADE STRUCTURED
CREDIT STRATEGIES ENHANCED LEVERAGE
MASTER FUND, LTD.,
Nominal Defendants.
——————————————————————-x

COMPLAINT

Excerpt:

Plaintiffs, Geoffrey Varga and Mark Longbottom, as Joint Official Liquidators (the
“Liquidators”) of Bear Stearns High-Grade Structured Credit Strategies (Overseas) Ltd. (In
Liquidation) (the “High-Grade Overseas Fund”) and Bear Stearns High-Grade Structured Credit
Strategies Enhanced Leverage (Overseas) Ltd. (In Liquidation) (the “High-Grade Enhanced
Overseas Fund,” and together with the High-Grade Overseas Fund, the “Overseas Funds”), by
their attorneys, Reed Smith LLP, as and for their Complaint against the above-named
Defendants, respectfully allege as follows:

I. PRELIMINARY STATEMENT

1. “It could be structured by cows and we would rate it,” crowed an S&P employee
to a co-worker in a text message. “[Our] model def[initely] does not capture half of the ris[k],”
he conceded. Quite matter-of-factly, a Moody’s employee admitted in an internal document that
“we sold our soul to the devil for revenue.” Nonetheless, the Defendants’ mission, as stated in
an article and an e-mail, was clear — “[d]on’t kill the golden goose,” and “[l]et’s hope we are all
wealthy and retired by the time this house of cards falters.” Indeed, recognizing the full breadth
and the implications of their wrongdoing, an S&P employee pleaded in an e-mail: “Lord help
our f***ing scam” (expletive partially redacted).

2. These quotes are not the punch line to a bad joke; rather, they are statements made
by representatives of Defendants — each a nationally recognized statistical rating organization
(together, the “Rating Agencies”) — that are the razor-sharp tip of an iceberg of evidence that, at
the same time these Rating Agencies were issuing their top, virtually risk-free ratings on
numerous complex securities, each of these very same Rating Agencies (but not the investing
public) knew the ratings were false, and that the collapse of the “house of cards” created by their
fraudulent ratings was imminent.

3. This action is brought by victims of this admitted scam perpetrated by each of the
Rating Agencies, and seeks to recover damages in connection with more than $1 billion of losses
sustained by the Overseas Funds and the Master Funds (defined below, and referred to
collectively as “the “Funds”) they “fed” into, as a direct and proximate result of the serial
fraudulent misconduct of the Rating Agencies in assigning ratings which led the Funds to believe
the securities at issue were far less risky than the Rating Agencies knew them to be.

4. Indeed, as their very names suggest, the Funds were intended to be “high-grade”
funds that were structured to invest primarily in the highest quality securities. Specifically, the
Funds’ stated strategy was to be invested in a portfolio of securities of which at least 90% had
the highest rating available, namely “AAA,” “AA,” or “AA-,” or equivalent ratings — meaning
that each security was of the highest credit quality, and the risk of its default was extremely low.

[…]

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