Shareholder lawsuits filed against Moody's Investors Corp. (MCO) over the company's rating of mortgage bonds before the housing crash are now the subject of a settlement agreement that could effectively end the case once the parties obtain final court approval. 

The original case involved the Louisiana Municipal Police Employees Retirement System, which sued Moody's, claiming that the firm hurt shareholders and the company's reputation by assigning inflated ratings on toxic mortgage-backed securities that were later called into question after the housing market crash.   

The shareholders argued in the original suit that the inflated ratings hurt Moody's reputation as a ratings giant. Other shareholder cases filed against Moody's were later consolidated into one case, which became the subject of this week's settlement agreement between the shareholders and Moody's.

In the original suit, the Louisiana retirement fund said, "Defendants destruction of the integrity of Moody's credit rating process was willful and deliberate. At minimum, this misconduct evinces defendants' gross negligence and extreme recklessness with regard to the affairs of Moody's."

The shareholders in the original complaint alleged that Moody's handing of mortgage ratings created a situation that could end up costing the firm hundreds or billions of dollars.

In their suit, the parties quoted Congressional testimony from former Federal Reserve Bank Chairman Alan Greenspan in which he said, "the surge in global demand for U.S. subprime securities by banks, hedge and pension funds, supported by unrealistically positive rating designations by credit agencies was, in my judgment, the core of the problem."

The parties filed a proposed settlement order with the court this week.  No settlement amount was discussed in court records, but the parties requested a court hearing on the settlement for later this month.