U.S. District Judge Shira Scheindlin ruled on Friday that Morgan Stanley cannot avoid liability for any inaccurate ratings on a group of notes backed by subprime mortgages by saying that the information came from Moody's Corp. and Standard & Poor's, Bloomberg News reported yesterday. The investors, which include Abu Dhabi Commercial Bank, claim Morgan Stanley was negligent in conveying ratings that it should have know were inaccurate. Scheindlin, applying New York law, rejected Morgan Stanley's argument that the alleged misstatements were made by the rating companies, not the bank. "Morgan Stanley's conveyance of the inaccurate ratings -- combined with its omission of nonpublic facts that it knew would undercut the ratings -- represented a breach of its duty to provide plaintiffs with accurate information," Judge Scheindlin said in her ruling. In August, Judge Scheindlin denied a request by Moody’s and Standard & Poor's to dismiss fraud claims against them in the suit. She also allowed the investors to pursue claims of aiding and abetting fraud against Morgan Stanley.
