Brown subpoenas credit rating firms

Kathy Woods Sep. 18, 2009, 2:00am

Jerry Brown (D)

SACRAMENTO, Calif. (Legal Newsline)-California Attorney General Jerry Brown on Thursday launched an investigation into the nation's three largest credit rating agencies.

The Democratic attorney general said his office has subpoenaed Moody's Investor Service, Standard & Poor's, and Fitch Ratings.

The investigation, Brown said, seeks to determine how much and when the companies knew about the creditworthiness of high risk mortgage-backed securities.

He said during the state's housing boom the credit rating agencies gave their highest marks to complicated financial instruments, making them appear as safe as government-issued Treasury bonds.

"Standard & Poor's, Moody's and Fitch put their seal of approval on high risk mortgage-backed securities, recklessly giving stellar ratings to shaky assets that proved toxic to the entire financial system," Brown said. "This investigation is meant to determine how these agencies could get it so wrong and whether they violated California law in the process."

Brown said investors depend on the companies' ratings to determine the risk when considering investments and loans. He sad the agencies gave high credit ratings to corporations and municipalities with not-so-stellar assets.

He said in rating these securities, the agencies worked behind the scenes with the same Wall Street firms that created the so-called toxic assets.

"For their work, the firms earned billions of dollars in revenue, at a rate nearly double what they earned for rating other financial products," the attorney general's statement said.

Brown is directing the agencies to provide investigators the information they seek by Oct.19.

In July, the California Public Employees' Retirement System filed a lawsuit in state court over $1 billion in losses becuase of what the pension fund called inaccurate risk assessments on the part of the three credit rating agencies.

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