American Lawyer recently turned to Berman DeValerio partner Todd Seaver for his views on the effects of the newly enacted Dodd-Frank Wall Street Reform and Consumer Protection Act on credit rating agencies.
The lead attorney in the California Public Employees' Retirement System's landmark litigation against the three major credit rating agencies, Seaver believes the new law provides some important checks on the previously unfettered agencies. "The rating agencies need a disciplining force that makes them liable for egregious behavior," he said.
Seaver told American Lawyer that while parts of the legislation affecting the rating agencies' accountability are effective, some elements don't go far enough. Specifically, a clause establishing liability for failure to conduct an investigation is "more smoke than fire," Seaver said. "In my view, this private right of action doesn't do anything."
Whatever checks the new law imposes will be welcome, though they arrive too late to help investors who had relied on the agencies prior to 2008, Seaver said. "We've seen what happens when the rating agencies act with absolute impunity," the article quoted him as saying. "The results are bad. The rating agencies weren't single-handedly responsible for the financial crisis, but they single-handedly could have prevented it."
The article can be found in the September 2010 issue of American Lawyer and is entitled "The Door Opens a Crack."