At the core of the Securities Act is the idea that a company should provide investors with basic information about the securities it is issuing. It requires issuers to publicly disclose significant information about themselves and terms of the securities. Those who make material misstatements of fact or omissions in a registration statement can be held accountable under Securities Act Section 11. This provision now covers many experts in the financial world, such as accountants, lawyers, investment bankers, directors, officers, and executives of the issuers. However, credit rating agencies are exempt from Section 11 liability by SEC rule.
The Senate conferees to the House-Senate conference on the financial reform legislation may agreed to a House provision that would level the playing field by stating that Rule 436(g) will have no force, thereby effectively removing the “expert” exemption for credit ratings included in a registration statement. (Senator Dodd seems to have orally accepted it, but Banking Committee website says rejected). If true, rating agencies will now have greater liability under the securities laws if a rating is included in a registration statement. Rating agencies would be liable for omitting information from a registration statement, putting them on the same level as other experts like accountants, auditors, and lawyers. The provision is intended to make credit rating agencies more accountable for their work by making them liable for misstatements or omissions of fact from a statement.