DEFICIENCIES IN CIVIL LAWSUITS
While civil lawsuits have made some substantial gains in the policing of Credit Rating Agency (CRA) conduct, because of cost and complexity they are less desirable than a narrowly tailored criminal statute. An individual investor or sovereign entity may be able to pursue an action against a CRA under a theory of negligent misrepresentation. In Anschutz v. Merrill, a noteworthy case from the U.S. Northern District of California, the court recently held an investors claim against Standard and Poor’s for negligent misrepresentation survived summary judgment. To state a negligent misrepresentation claim under California law, a plaintiff must allege: “(1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage.” This would seem a perfect theory of liability to sue Credit Rating Agencies who recklessly certify securities. The benefits of negligent misrepresentation are that the intent element lies with the intent to induce reliance, rather than an intent to defraud, and that the burden of proving a civil claim is only preponderance of evidence instead of beyond a reasonable doubt. However, the weakness from both a plaintiff’s and societal perspective regarding civil litigation is the lack of efficiency. Civil lawsuits take much longer than criminal cases to travel through the system. Also, civil lawsuits place a much greater financial burden upon individuals to litigate, for both the plaintiff and defendant. Finally, civil lawsuits are less effective at shaping conduct. Firms are unlikely to change their practices if they can hide behind long, confusing litigation processes which render esoteric newspaper headlines. Instead, headlines including the proverbial “perp walk” will readily change the actions of management
 Anschutz Corp. v. Merrill Lynch & Co., 785 F. Supp. 2d 799, 822 (N.D. Cal. 2011).
Below is a section of Mark Baserman Jr's Fall 2011 article
regarding White Collar Crime:
Copyright © Mark Baserman. All rights reserved. License for cover image purchased through Adobe Stock on 07/14/2016.