ADVERTISEMENT

The collapse of two Bear Stearns hedge funds in 2007 was among the earliest signs of the impending financial crisis.

More than six years later, lawyers continue to fight over the cause of their demise.

Monday morning, liquidators seeking to recover money for investors in the funds filed a fraud lawsuit against three major credit rating agencies.

The action, filed in a New York state court, accuses Standard & Poor’s, Fitch Ratings and Moody’s Investors Service of assigning artificially high credit ratings to the mortgage bonds in the funds.

When those bonds collapsed, the funds failed, resulting in more than $1 billion in investor losses.

In a 141-page complaint, the liquidators cite a trove of texts and emails – some of which had already surfaced in earlier cases – that they say show the agencies knew their high-quality ratings on the mortgage bonds were a sham.

“It could be structured by cows, and we would rate it,” an S&P employee said to a co-worker in a text message from 2007.

“We sold our soul to the devil for revenue,” a Moody’s employee said in an internal document.

In an email, another S&P employee called the firm’s ratings practices a “scam.”

James C. McCarroll, a lawyer representing the liquidators, said that by giving risky mortgage bonds misleading ratings, the agencies were enriching themselves at the expense of investors in the Bear hedge funds that owned those bonds.