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by Vault Law Editors | July 20, 2009


A Kong-sized Floyd Abrams, the only free speech litigator anyone’s ever heard of, stands among a horde of terrified accountants (they wear green eyeshades), who are clutching at his legs.  This odd illustration accompanies a long, meaty piece in the Times on Abrams and his impending role in the financial meltdown aftermath: ‘A Matter of Opinion: Free Speech Defender Wades Into the Credit Mess.’ Among other things, we learn that Abrams is no longer the Times' go-to counsel for First Amendment matters because his rates are too high. At least that's what Abrams tells the Times, which prints the assertion without comment.

The Times also declares that “The recession … is about to begin its litigation phase,” as  Abrams and his Cahill Gordon colleagues are gearing up to defend more than 30 suits filed against their client Standard & Poor’s.  S&P is the largest of those credit rating agencies that were so busy, until recently, slapping all those AAA ratings on so many dog’s breakfasts.   The plaintiffs in these cases, including the massive pension fund Calpers, blame the ratings agencies for their losses, having relied to their detriment on the ratings agencies’ meaningless (delusional?) assessments.   

Among other arguments, Abrams will contend that S.& P.’s ratings deserve the free-speech protections afforded to journalists, on the theory that a bond rating is like an editorial.  “The major similarity here is that both the newspaper and S.& P. are offering opinions on matters that people can and do disagree about.”  Apparently, this is a tried-and-true argument for S&P, which has never lost litigation (though it did settle a ‘small’ one 10 years ago.)  An interesting parallel: the ratings agencies “stand roughly where the tobacco companies stood in the mid-1990s: unpopular in public, virtually undefeated in court.” 

However, many experts are deeply skeptical that a First Amendment argument will continue the winning streak for the agencies.  For example, Columbia Law Professor John Coffee: “I don’t think that a rating is the same as an editorial, because The New York Times’ editorial page isn’t paid for by a sponsor. The direct, commercial relationship of the issuer of the bond and the rating agency puts it into the field of commercial speech.”

The entire article is worthwhile, particularly for its discussion of the role of lawyers in facilitating the financial crisis.  This is a relatively under examined story, as most accounts focus on the rapacious i-banks, the subprime mortgage predators, or the feckless government regulators.  The Times, however, put the lawyers squarely in the frame:

“[T]here is hardly a step along the path from real estate appraisal to securitized debt offering that didn’t involve lawyers. They were involved in structuring transactions, writing contracts, reading contracts, compliance, lobbying, and on and on”

“You can’t have a financial calamity without lawyers,” says George M. Cohen, a professor at the University of Virginia School of Law. “You need them to issue an opinion that a certain trading strategy is O.K., even if it might be really questionable. That can be invaluable to an investment bank. The lawyers say, ‘This is all right; everybody is doing it.’ And you’re off to the races.”

                                  -posted by brian



Filed Under: Law

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