Legal Newsline

Tuesday, April 7, 2020

Ohio appealing ruling in case against credit rating agencies

By John O'Brien | Nov 1, 2011

NEW YORK (Legal Newsline) - Attorneys for five Ohio pension funds are not accepting a ruling that dismissed former state Attorney General Richard Cordray's lawsuit against the three major credit rating agencies.

Last week, private attorneys hired by Cordray - now President Barack Obama's pick to head a key consumer protection agency - decided they would appeal U.S. District Judge James Graham's September ruling in favor of Standard & Poor's, Moody's Investors Service and Fitch Ratings.

Cordray's lawsuit, filed in November 2009, claimed the five public pension funds lost at least $457 million as a result of the agencies' actions. He blamed them for helping cause the collapse of the housing and credit markets.

"The rating agencies rightly argue that they were not the sellers of the securities purchased by the Ohio funds," Graham wrote in his decision. "This leaves the Ohio funds to argue that the rating agencies are liable because they 'received(d) the profits accruing from such sale.'

"The Ohio funds contend that the rating agencies received profits because 'the rating agencies did not receive their full fees for a deal unless the deal was completed and the requested rating was provided.' Elsewhere, the complaint alleges that the rating agencies were not paid unless the 'target rating was attained' and 'the credit rating was issued.'"

In his lawsuit, Cordray said the rating firms marketed mortgage-backed securities by giving them the highest ratings and lowest risk. He said the agencies put high ratings on toxic mortgage debt in return for high fees paid by those they were rating.

He alleged the agencies violated the Ohio Securities Act and committed negligent misrepresentation. The five Ohio funds made 308 separate investments in mortgage-backed securities from 2005-08.

"The Ohio funds' argument has no merit because the language of the statute plainly requires that the profits accrue from the sale of securities, not from work performed in preparation for a securities offering, if the fee is not contingent upon an actual sale," Graham wrote.

In November, Cordray lost to former Lt. Gov. and U.S. Sen. Mike DeWine, a Republican who inherited the lawsuit, in the state attorney general race. He had been elected to the post in November 2008 to serve the remainder of the term held by the previous attorney general, Marc Dann. Dann had resigned in May 2008 amid a sex scandal.

Prior to being attorney general, Cordray served as the Ohio State Treasurer and as treasurer of Franklin County, Ohio. He also served as a member of the Ohio House of Representatives and as the state's first solicitor.

The private firms hired by Cordray for the lawsuit were: Lieff, Cabraser, Heimann & Bernstein of New York; Entwistle & Capucci of New York; and Schottenstein Zox & Dunn of Columbus.

Employees of the Lieff firm gave $50,000 to the Ohio Democratic Party in 2008. The party gave Cordray more than $1.8 million for his campaign that year.

The Schottenstein firm gave $23,500 to Cordray from 2008-10.

Currently, Obama's nomination of Cordray to head the Consumer Financial Protection Bureau is a point of contention between Republicans and Democrats in the U.S. Senate. The Senate Banking Committee voted along party lines in October to approve the nomination but Republicans are likely to put up a fight when the vote goes to the full Senate.

From Legal Newsline: Reach John O'Brien by e-mail at

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