The Icarus Syndrome: How Credit Rating Agencies Lost Their Quasi-Immunity

University of Cambridge Faculty of Law Research Paper No. 12/2017

71 (2018) Southern Methodist University Law Review

39 Pages Posted: 14 Feb 2017 Last revised: 6 Mar 2020

See all articles by Michael Waibel

Michael Waibel

University of Vienna - Faculty of Law

Norbert Gaillard

NG Consulting

Date Written: February 1, 2017


This Article studies how the status and the liability regime of credit rating agencies (CRAs) have evolved and argues that CRAs lost their regulatory and judicial "quasi-immunity" over the last decade. Until the 1980s, libel lawsuits rarely threatened CRAs because their ratings were akin to opinions. The shift to the "issuer pays" model and the emergence of SF products transformed certain rating activities into advisory services, which changed the nature of credit ratings. Section I discusses the role of CRAs as gatekeepers of financial markets and sheds new light on the regulatory license that the Office of the Comptroller of the Currency (OCC) and the SEC granted them through embedding ratings in regulatory rules and the creation of a nationally recognized status. Section II shows that the Free Speech Clause of the First Amendment has traditionally shielded CRAs from litigation. CRAs have even been immune to claims brought under section 11 of the Securities Act of 1933 - which provides for liability for material misstatements and omissions in public offering documents. Section III argues that the changing character of ratings has eroded the First Amendment protection on which CRAs have traditionally relied. When courts instead started to consider these ratings (especially SF ratings) as commercial speech, CRAs have become more vulnerable to litigation. Lastly, Section IV shows that the subprime crisis of 2007-2008 catalyzed this shift from quasi-immunity to liability because claims by investors and regulators against CRAs for fraud and negligent misrepresentation fell within the scope of commercial speech. In this context, CRAs had little choice but to reach settlements and pay substantial fines.

Keywords: credit rating agency, free speech, commercial speech, First Amendment, litigation, mercantile agency, subprime crisis, Standard & Poor's, Moody's, Fitch

JEL Classification: G18, G24

Suggested Citation

Waibel, Michael and Gaillard, Norbert, The Icarus Syndrome: How Credit Rating Agencies Lost Their Quasi-Immunity (February 1, 2017). University of Cambridge Faculty of Law Research Paper No. 12/2017, 71 (2018) Southern Methodist University Law Review, Available at SSRN: or

Michael Waibel (Contact Author)

University of Vienna - Faculty of Law ( email )

Schottenbastei 10-16
Vienna, A-1010

Norbert Gaillard

NG Consulting ( email )



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