Today, Judge Pauley dismissed a False Claims Act case (described as a “sprawling . . . Homeric ‘Catalogue of Ships’ for the 2008 financial crisis”) brought against ratings agency Moody’s by a former managing director.  The amended complaint alleged that Moody’s lack of independence and conflicts of interest led to false credit ratings that caused a myriad of “false payments” by the government, ranging from underpayment of FDIC premiums to an overvaluation of the AIG bailout.

Judge Pauley found that in order to succeed, the plaintiff would have to show that the government (not a private entity) had relied on Moody’s false ratings or that Moody’s had directed other financial institutions to submit false claims to the government.  The allegations in the amended complaint did not meet this requirement:

[T]he False Claims Act is not intended to reach fraudulent conduct where no claim for payment is made.  [The plaintiff] makes no allegation that Moody’s sought any money from the Government.  Rather, he alleges that Moody’s fraudulently obtained a Government endorsement and later used that special status to submit false claims to private entities for payment.

Judge Pauley rejected an additional argument by Moody’s that the claims were precluded by the public disclosure bar due to the wide reporting of the financial crisis.  He found that the plaintiff was still an “original source” due to his direct and independent knowledge of Moody’s practices during the relevant time period.

The plaintiff was given the opportunity to replead one claim, alleging that Moody’s sold subscriptions for its ratings delivery service to the government, which contained false ratings.  Though the claim was dismissed for failure to plead with particularity, Judge Pauley found that it was not time-barred and gave leave to replead.