CASE 21.2 In re Lehman Bros.Mortgage-Backed Securities Litigation (2011)involved a question of whether rating agencies that helped select a pool of mortgages for a mortgage-backed security were "underwriters" under the 1933 Act or "controlling persons" under section 15 of the 1933 Act.How did the court rule?
A) The court ruled that the proof established that the rating agencies were both underwriters and controlling persons under the 1933 Act.
B) The court ruled that the proof failed to establish that the rating agencies were either underwriters or controlling persons under the 1933 Act.
C) The court ruled that the proof established that the rating agencies were underwriters under the 1933 Act but that the proof failed to establish that the rating agencies were controlling persons under the 1933 Act.
D) The court ruled that the proof established that the rating agencies were controlling persons under the 1933 Act but that the proof failed to establish that the rating agencies were underwriters under the 1933 Act.

Question

Quizplus · Accepted Answer

The court ruled that the proof failed to establish that the rating agencies were either underwriters or controlling persons under the 1933 Act. The court found that the rating agencies' role in selecting the pool of mortgages was not a "substantial factor" in the offering of the securities and therefore they did not meet the definition of underwriters. Additionally, the court found that the plaintiffs failed to establish that the rating agencies had the power to control the actions of the mortgage originators, and therefore they did not meet the definition of controlling persons.

CASE 212 in Re Lehman Bros