The largest US public pension fund has won a court ruling allowing it to proceed with a lawsuit accusing the three biggest credit rating agencies of assigning “wildly inaccurate and unreasonably high” ratings, causing $1 billion of losses.
The pension fund said on Tuesday that a San Francisco superior court judge had on April 30, ruled in favour of its California Public Employees’ Retirement System, rejecting a request by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings to dismiss a claim of negligent misrepresentation.
Judge Richard Kramer also threw out a separate claim alleging negligent interference with prospective economic advantage. A written opinion is expected within a few weeks.
Filed in July 2009, CalPERS' lawsuit focuses on structured investment vehicles, which are complex packages of loans and debt, including sub-prime mortgages and collateralised debt obligations, that banks assemble and then sell to investors.
The pension fund contended that it had bought $1.3 billion of debt issued by Cheyne Finance LLC, Sigma Finance Inc and Stanfield Victoria Funding LLC, which were SIVs that had received “triple-A” ratings.
But it said these ratings were inflated, and that it suffered heavy losses starting in 2007 when the investments collapsed in value as credit tightened. It sought unspecified damages.
CalPERS provides retirement benefits to about 1.6 million public employees in California, and oversaw about $201.6 billion of assets as of February 28.
Moody's spokesman Michael Adler and S&P spokesman Frank Briamonte said their respective agencies were pleased that one CalPERS claim had been dismissed, and they expect to eventually prevail on the misrepresentation claim.
Fitch spokesman David Weinfurter said his company plans to appeal the judge’s ruling and that CalPERS' claim lacks merit.