Cordray Sues Credit-Ratings Agencies, Says Ohio Funds Lost $457M

COLUMBUS, Ohio—Ohio Attorney General Richard Cordray has filed a lawsuit against three credit-ratings agencies, charging that they provided “unjustified and inflated ratings of mortgage-backed securities in exchange for lucrative fees from securities issuers.“

The lawsuit contends that Standard & Poor’s, Moody’s and Fitch “wreaked havoc on U.S. financial markets” by giving exotic investments the highest investment-grade credit rating, AAA.

In a news release Friday morning, Cordray’s office announced the lawsuit on behalf of five Ohio public employment and pension funds, noting that “the improper ratings cost the Ohio Funds losses in excess of $457 million.“

The plaintiffs in the lawsuit are 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.

Cordray is quoted in the news release saying, “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. But they sold their professional objectivity and integrity to the highest bidder. 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.“

“Investments in mortgage-backed securities were nowhere near as safe as the rating agencies assured investors they would be. In other words, the credit rating agencies sold out and they sold us out,“ Cordray told reporters Friday. “At a minimum they were aiding and abetting misconduct by the issuers.“

Cordray said the lawsuit asks for hundreds of millions of dollars on behalf of the pensions and pension members that could potentially see benefits reduced as a result of the losses.

Standard and Poor’s spokesperson, Steve Weiss told NBC4 Friday, “we believe the claim has no legal or factual merit and we intend to defend ourselves vigorously against it.“

Weiss added, “a recent SEC examination of our business practices found no evidence that decisions about ratings methodologies or models were based on attracting or losing market share.“

Ohio follows California in becoming the second state to sue the credit rating agencies. Cordray said he would not be surprised if other states followed.

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