Rating agencies score a failing grade

Standard Poor’s took a beating in an Australian court last week after a judge found that the rating agency had been “misleading and deceptive” in its rating of a particular structured finance product.

A standard defence for credit rating agencies in these kinds of actions is to plead the First or, in other words, argue that their ratings are opinions protected by freedom-of-speech laws.

In most cases, courts have agreed and found that investors have a responsibility to conduct their own due diligence and should not rely on credit ratings to determine whether an investment is suitable. That may yet be the outcome in...