Not Always the World?s Shortest Editorial: Why Credit-Rating-Agency Speech Is Sometimes Professional Speech

• Author: Jonathan W. Heggen
• Position: J.D., The University of Iowa College of Law, 2011; B.A., The University of Iowa, 2006.
• Pages: 1745-1766

1745

Not Always the World’s Shortest Editorial:

Why Credit-Rating-Agency Speech Is

Sometimes Professional Speech

Jonathan W. Heggen

ABSTRACT: Credit-rating agencies have historically been quite successful

at avoiding liability over their ratings by appealing to the First

Amendment’s guarantee of the freedom of speech. However, the advent of

structured finance, such as residential mortgage-backed securities and

collateralized-debt obligations, has drastically altered the nature of what the

credit-rating agencies do. As people search for culprits in the credit crisis and

investors are stinging from the loss of billions of dollars of highly rated

securities that occurred almost overnight, the credit-rating agencies find

themselves being haled into court with increasing frequency. Courts should

not mechanically apply the actual-malice standard simply because the

defendant is a credit-rating agency; rather, when a credit-rating agency

plays an active role in structuring the deal, courts should recognize the

credit-rating agency’s speech for what it is—professional speech—and deny

the credit-rating agency the protection of the actual-malice standard.

I. INTRODUCTION .................................................................................... 1747

II. BACKGROUND ...................................................................................... 1751

A. A BRIEF HISTORY OF CRAS ............................................................. 1751

B. CHANGES FROM THE HISTORICAL CRA BUSINESS MODEL ................. 1752

C. THE ROLE OF CRAS IN STRUCTURED FINANCE ................................. 1753

III. RATING AGENCIES AND THE FIRST AMENDMENT .................................. 1754

IV. NOT ALWAYS THE WORLD’S SHORTEST EDITORIAL ............................. 1758

A. FREE-SPEECH THEORIES .................................................................. 1759

 J.D., The University of Iowa College of Law, 2011; B.A., The University of Iowa, 2006.

Thank you to Marie, my family, and friends for all your support throughout law school. Thank

you to Volumes 95 and 96 of the Iowa Law Review for their contributions and suggestions that

improved this Note.

1746 IOWA LAW REVIEW [Vol. 96:1745

B. CRAS IN THEIR TRADITIONAL ROLE AND THE MARKETPLACE OF

IDEAS ............................................................................................. 1760

C. CRAS AS FINANCIAL ADVISORS AND THE MARKETPLACE OF IDEAS ..... 1764

V. CONCLUSION ....................................................................................... 1766