The Southern District of Ohio recently dismissed a case brought by five Ohio state investment funds against certain credit rating agencies, with the losses allegedly arising from the funds' purchase of residential and commercial-backed securities. [See Court's Opinion and Order here] Claiming losses of nearly half a billion dollars, the funds claim that they relied on the credit ratings in making their decisions to purchase the securities. These claims were brought under Ohio's Blue Sky Law preventing the seller of securities from making material misrepresentations. The court accepted the rating agencies' argument that Ohio's anti-fraud securities provision could not apply to them because they were not the actual sellers of the securities, nor did they profit from the sale.
There are a number of cases swirling through the judiciary concerning the fallout of the residential mortgage crisis, and this case may provide the Sixth Circuit with an opportunity to provide some parameters on how those case issues should be adjudicated. Although the issue appears to be purely one of Ohio law, the blue sky statutes bear some similarity across jurisdictions, and therefore the Court's ultimate decision may have broader implications. We will continue to keep an eye on this case as it works its way through the Circuit.