Ohio AG sues Wall Street rating firms

Chris Rizo Nov. 20, 2009, 12:44pm

Richard Cordray (D)

COLUMBUS, Ohio (Legal Newsline)- The Ohio's attorney general sued the nation's three major Wall Street credit-ratings agencies Friday, alleging that they provided inflated ratings to mortgage-backed securities.

Attorney General Richard Cordray said as a result of inflated ratings by Standard & Poor's, Moody's Investors Service and Fitch Ratings, five Ohio public pension funds lost at least $457 million.

"The rating agencies were central players in causing the worst economic crisis in Ohio since the Great Depression. The rating agencies assured our employee pension funds that many of these mortgage-backed securities had the highest credit ratings and the lowest risk," Cordray said. "But they sold their professional objectivity and integrity to the highest bidder."

In his 77-page lawsuit -- filed in U.S. District Court for the Southern District of Ohio -- Cordray said the credit-rating firms marketed mortgage-backed securities, saying they had the highest ratings and lowest risk.

Cordray, the former Democratic state treasurer, said the rating firms put high rating on the on toxic mortgage debt in return for high fees paid by those they were rating.

"The rating agencies' total disregard for the life's work of ordinary Ohioans caused the collapse of our housing and credit markets and is at the heart of what's wrong with Wall Street today," Cordray said.

The attorney general's lawsuit was filed on behalf of the Ohio Public Employees Retirement System, the State Teachers Retirement System of Ohio, the Ohio Police & Fire Pension Fund, the School Employees Retirement System of Ohio and the Ohio Public Employees Deferred Compensation Program.

The McGraw-Hill Companies, parent to Standard & Poor's, says it plans to fight Cordray's claims.

"We believe the claim has no legal or factual merit and we intend to defend ourselves vigorously against it," said corporate spokesman Steven Weiss.

The lawsuit is just the latest action by a state attorney general filed against Standard & Poor's, Moody's and Fitch.

In September California Attorney General Jerry Brown, a Democrat, began an investigation to determine how much and when the companies knew about the creditworthiness of high risk mortgage-backed securities.

"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 at the time.

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

Last year, Connecticut Attorney General Richard Blumenthal, a Democrat, sued the credit-rating agencies over "deceptive and unfair practices" that he said have cost taxpayers millions of dollars in interest and bond insurance costs.

From Legal Newsline: Reach staff reporter Chris Rizo at chrisrizo@legalnewsline.com.

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