Sam Brotman, JD, LLM, MBA January 15, 2014 6 min read

Consequences for Non-Compliance of Dodd-Frank


Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

Consequences for Non-Compliance of the Law

Along with the increased responsibility placed on the credit rating agencies, there are also harsher consequences if they are not compliant with the Dodd-Frank Act. Part of the legislation includes standards and new liabilities for the credit rating agencies. First, there are harsher penalties under the 1934 Securities and Exchange Act including new responsibility for information filed with the SEC.

Credit rating agencies can be severely punished by the SEC for statements that contain false information or misrepresentations with respect to facts that are material. Materiality has defined by the courts as any fact that has a tendency to influence the decision making of a shareholder or investor.[1] These penalties include broader power by the SEC to suspend or revoke registrations of ratings agencies who fail “over a sustained period of time…to produce ratings that are accurate for that class or subclass of securities.[2]

Perhaps one of the most important clauses of the Dodd-Frank Act that has the greatest impact on credit rating agencies is Sec. 939G, which nullifies Rule 436G of the Securities Act of 1933. "Rule 436(g) exempts credit ratings provided by NRSROs from being considered a part of the registration statement prepared or certified by a person under such Act".[3] The nullification of this rule now holds NRSROs accountable for their ratings because they become subject to "expert liability" once credit ratings become part of the registration statement.

This requires that the agency produce evidence that there were reasonable ground to believe that the rating that was issued was accurate. In addition, the Dodd-Frank establishes a new private right of action against the agencies. Previously private action was not allowed against the agencies, but they can be now be held liable. State of mind is important because it allows legal actions to go forward when a complaint alleges that the credit rating agency either knowingly or recklessly failed to reasonably verify factual elements received from a third party source that the rating agency has relied upon and about that source’s independence from the issuer or the underwriter of the securities.

This also extends to factual elements that the rating agency puts out on its’ own. If a complaint is allowed to go forward, it can lead to additional discovery that the plaintiff can then use to substantiate their claims.

Brotman Law request consultation


[1] Blacks Law Dictionary. Last accessed November 16, 2011.

[3] The Library of Congress. Last accessed November 16, 2011.

"Sam is a wonderful, results-oriented and extremely knowledgeable and talented attorney, who really has 'heart' in working on behalf of his clients, and explains options in a straightforward, respectful manner. He has assisted us with great outcomes which have added to our quality of life. I would not hesitate to recommend Sam for his services as he is an ethical, personable and expert attorney in his field. You will likely not be disappointed with Sam's work ethic, approach and his efforts."

-Aileen Dwight, Licensed Clinical Social Worker & Psychotherapist

Last updated: July 8, 2024

Receive the Best of
Brotman Law

Get this topic delivered straight to your inbox.

New call-to-action

Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law



Our best stuff: secrets, tax saving tools, and tax defense strategies from the braintrust at Brotman Law.

  • Expanded benefits during your first consultation with the firm.
  • Priority appointment scheduling and appointment times.
  • Complementary access to our firm’s concierge services.
  • Receive updates and “insider only” tax strategies and tactics.
  • And many more benefits.

Not Sure Where to Start?

Step 1 Start Here

Start Here

These ten big ideas will change the way you think about your taxes and your business.

Start Here

Step 2 Learn About Your Situation

Learn About Your Situation

Find the articles and videos you need to make the right tax decisions in the learning center.

Visit the Learning Center

Step 3 Explore Our Services

Explore Our Services

It is not just about what we do, but who we are, why we do it, and how that benefits you.

View All Services

Step 4 Get Your Game Plan

Get Your Game Plan

Meet with us to outline your strategy. No further obligation, 100% money-back guarantee.

Book an Action Plan