On April 30, Judge Richard Kramer, a state court judge in San Francisco, rejected the ratings agencies’ requests to dismiss claims of negligent misrepresentation by the California Public Employees Retirement System (CalPERS), the nation’s largest public pension fund.
Now, according to Bloomberg, Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings must face the California Public Employees Retirement System’s (CalPERS) lawsuit claiming their faulty risk assessments on structured investment vehicles caused $1 billion in losses (see CalPERS Says Losses Caused by Inaccurate Credit Ratings).
Judge Kramer also tossed out a claim of negligent interference by CalPERS, but said the fund could renew that claim later, according to the report.
The lawsuit, filed last summer focuses on a form of debt called structured investment vehicles (SIVs), complex packages of securities made up of a variety of assets, including subprime mortgages. CalPERS invested $1.3 billion in them in 2006, only to see their value collapse in 2007 and 2008. In its suit, CalPERS alleges that in giving these packages of securities the agencies’ highest credit rating, the three top ratings agencies — Moody’s Investors Service, Standard & Poor’s and Fitch — “made negligent misrepresentation” to the pension fund. The AAA ratings given by the agencies “proved to be wildly inaccurate and unreasonably high,” according to the suit, which also said that the methods used by the rating agencies to assess these packages of securities “were seriously flawed in conception and incompetently applied.”