The private credit market has crossed $2 trillion globally and is on track to hit $4 trillion by decade’s end. That growth came with a cost. Fitch Ratings recorded a private credit default rate of 5.8% in January 2026, the highest it has ever recorded. In consumer products, the default rate doubled within twelve months.
The problem lies in how private credit is built. From the start, it has been hard to see inside. There is no open market where these loans are bought and sold, so no one knows the real price. Companies do not have an obligation to share their numbers often. And the rules are weaker than those for normal banks.
Because of this, you cannot see the danger early. The risk grows slowly and stays hidden. Then one day it breaks open, and people go to court.
This has happened before. After the 2008 crash, many people sued the credit rating agencies for the same reason. Today, the situation looks a little different, but the core problem remains the same.
Lessons from Credit Rating Agency Litigation: An Economic Framework
In April 2012, Bin Zhou and I, both then at The Brattle Group, published “Economic Considerations in Litigation Against the Credit Rating Agencies,” a working analytical framework for how rating agency conduct generates litigation exposure and how economists can quantify it.
The problems we found were easy to see. In this system, the company that wants a rating is the same company that pays for it. So, there is pressure to give that company a good rating. This makes ratings appear better than they really are (“ratings inflation”).
Investors trust these ratings. They think the ratings are fair and honest. So, they make choices based on them. But if the ratings were wrong, the investors made choices they would not have made if they had known the truth.
This leads to some hard legal questions. Did the investors really depend on those ratings? Can you prove that the high rating, and not something else, caused the loss? And how do you assess the magnitude of these losses?
The 2017 Moody’s DOJ settlement validated those frameworks directly: $864 million. Moody’s acknowledged that it had used a more lenient standard than its published methodology, misleading investors in mortgage-backed securities. The same structural agency problems, conflict of interests and producing inflated ratings, were at the center of it.
How Private Credit Recreates and Amplifies Those Same Dynamics
The link between this and private credit is deep. It is not just on the surface. It comes from how the system is built.
In public markets, three big companies issue most of the ratings: Moody’s, S&P, and Fitch. But in private credit, smaller companies have taken over this job. These smaller firms focus only on this kind of work.
The numbers show the change. The IMF reports that smaller agencies rated about 7,000 private securities in 2023. In 2019, that number was only around 2,000. The big agencies, by comparison, rated only about 1,000 each year.
These smaller firms now face the same money pressures that the big agencies faced before 2008. But there is a difference. Fewer people watch them closely. And they have less of a name to protect, so they have less to lose.
The insurance world highlights this problem in a real way. In North America, insurers now keep about 35 percent of their money in private credit. Life insurers hold close to one-third of their assets in private debt, and that pile of assets is worth 5.6 trillion dollars.
Insurers have a big reason to want high ratings. When a rating is low, the rules force them to hold more money in reserve. So, they go looking for the best rating they can find. This is called ratings shopping.
In November 2025, UBS Chairman Colm Kelleher gave this habit another name. He called it rating agency arbitrage and said it was much like what happened before the 2008 crash. He warned that it could become a serious danger to the whole system.
The Bank for International Settlements saw the same thing. It noted that smaller agencies may feel pressure to give better ratings than they should.
There is no outside way to check if private credit ratings are right. These loans are not bought and sold on a market, so no price ever tests them. The value of the assets is reported only four times a year, and the firms work that value out using their own private methods.
So, if a rating does not match the real risk in a portfolio, nothing in the market can show that gap. The truth stays hidden until the losses finally appear.
Emerging Private Credit Securities Litigation Trends
The lawsuits have already begun. In early 2026, several group lawsuits were filed against publicly traded Business Development Companies (BDCs), which are investment firms that provide financing to middle-market and privately held companies and are a major source of capital in the private credit market. The investors sued under two well-known securities rules, Section 10(b) and Rule 10b-5. They claimed that these firms gave false values for their assets. They also said the firms hid losses and were too slow to admit that the quality of their loans was deteriorating.
One of these lawsuits came after a firm shared some bad news. The value of each share dropped 19 percent in just three months. Over the full year, it had fallen 23.4 percent. A sudden drop like that is a warning sign. It suggests the problems had been building up quietly, out of sight, for a long time.
Claims against the credit rating agencies make sense in the same way. Say an agency uses a method that does not demonstrate the real risk in a private credit portfolio. This might happen because of a conflict of interest or a simple mistake in their work. If that happens, the investors who trusted those ratings may have a case. They could argue that the agency lied to them, or at least was careless with the truth.
The SEC seems to be aware of all this. Its list of priorities for 2026 points straight at private credit funds. The agency says it will look more closely at how these funds value their assets, what fees they charge, what they say about how easy it is to pull money out, and whether they treat some investors better than others.
The risk from retirement plans is growing, too. ERISA is the law that protects workers’ retirement savings in the US. In March 2026, the Department of Labor put forward a new rule. This rule would make it easier for private credit to enter 401(k) plans, which are common workplace retirement plans. It would do this through target date funds, the kind of funds that slowly grow safer as you near retirement.
The lawsuits are piling up fast. In just the first three months of 2026, almost 70 group lawsuits were filed under ERISA. That is nearly twice as many as the year before.
Private credit is now becoming a normal part of these retirement plans, often set as the default choice. So, the people in charge of these plans will come under pressure. If they did not carefully check the risks, both the value of the assets and how easy it is to take money out, they will have to answer for it.
Fights over fund withdrawals are already happening. In the first three months of 2026, investors tried to take 20 billion dollars out of private credit funds. But the funds used special rules, called gates, that let them slow down or block these withdrawals.
This created an unfair gap. The investors who got out left at the value the fund had stated on paper. But that value may not have matched the real situation. So, they may have walked away with more than their share. And the investors who stayed behind were left to pay the price. Expect litigation to ensue.
Expert Witness Capabilities These Cases Require
Private credit securities litigation is technically demanding. Getting from “something went wrong” to a defensible economic damages figure requires a specific set of skills.
Event studies and market efficiency analyses are foundational to BDC fraud class actions. The expert must isolate whether the alleged misrepresentation or broader market forces caused a stock price movement. That analysis drives class certification.
Credit rating methodology analysis is a must when the agencies are being blamed. The expert has to check if the agency followed its own published method. Did it use that method in a fair way for the portfolio in question? And what would the right ratings have looked like? This is not a basic study. It requires deep knowledge of how rating models work and where they fail.
NAV and valuation analysis sit at the center of both BDC fraud cases and redemption disputes. Were reported valuations consistent with fair value standards? Were methodologies adequate or designed to delay loss recognition?
Damage modeling ties it all together. Investor losses require careful analysis of the inflation period, corrective disclosures, and the portion of decline attributable to the alleged fraud, not other market factors.
How My Background Addresses These Needs
My 2012 article with Bin Zhou was a real working guide made for live court cases. The analytical questions it dealt with, such as conflicts of interest, reliance, causation, and how to measure damages, are the very same questions now arising in private credit fights. My 2016 ABA piece, “Latest SEC Report on Rating Agencies Resurrects Questions Concerning Conflicts of Interest,” continued my focus on rating agency blame. That focus came nearly ten years before the current private credit moment.
Along with that, I have over 16 years of experience in securities lawsuits. I have conducted event studies, market efficiency analyses, price-impact analyses, and loss modeling in cases worth billions. I help both sides, those who sue and those who defend. For cases about BDC fraud, rating agency blame, value disputes, or ERISA duty claims, this mix of skills is what these cases need.
The Playbook is Being Rewritten
The lawsuits after 2008 proved something key. Rating agencies can be taken to court. There are workable ways to measure the harm in monetary terms. That same plan is now being used for private credit, but on a bigger scale, with murkier products and many more investors, including everyday people through 401(k) plans.
Lawyers working on these cases need an expert who knows both the legal and analytical side of them. I offer a free and private first meeting to talk about how my skills can help your case.