Yet another attorney general has announced mistrust in Standard & Poor's (S&P), Moody’s and Fitch. Ohio Attorney General Richard Cordray http://www.ohioattorneygeneral.gov has filed a lawsuit against the national securities and credit ratings agencies over what the AG's office called "false and misleading" securities information.
This comes just months after California Attorney General Edmund Brown Jr. launched an investigation into the three credit rating agencies' role in fueling the financial crisis, and the Securities and Exchange Commission (SEC) voted to increase oversight credit ratings agencies.
The lawsuit Cordray filed in United States District Court for the Southern District of Ohio on behalf of five Ohio public employee retirement and pension funds, charges the rating agencies with wreaking havoc on U.S. financial markets by providing unjustified and inflated ratings of mortgage-backed securities in exchange for lucrative fees from securities issuers. According to the Wall Street Journal, the lawsuit is not intended to become a class-action lawsuit.
“The rating agencies were central players in causing the worst economic crisis in Ohio since the Great Depression,” Cordray says in an announcement released by his office. “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.”
The lawsuit alleges the rating agencies gave many exotic investments the highest investment-grade credit rating, according to information released by Cordray’s office.
The "AAA" rating is consistent with the credit ratings given to the safest corporate bonds, and it assured institutional investors, including the Ohio funds, that the investments were extremely safe with a very low risk of default, the AG's office says.
INN obtained a statement from Steven Weiss, VP of corporate communications for The McGraw-Hill Cos. (Standard & Poors’ parent company). “We believe the claim has no legal or factual merit, and we intend to vigorously defend ourselves against it,” he says. “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.”
Moody’s and Fitch did not respond by press time.
The lawsuit alleges that the rating agencies made spectacularly misleading evaluations of mortgage-backed securities due in part to the lucrative fees they received from the same issuers they were supposed to be objectively evaluating.
To read the filing, visit www.ohioattorneygeneral.gov/SecuritiesLitigationBriefing.
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