* Moody's, S&P, Fitch must defend lawsuit
* $1 billion losses alleged
* Rating agencies expect to prevail
By Jonathan Stempel
NEW YORK, May 4 The largest U.S. public pension
fund has won a court ruling allowing it to proceed with its
lawsuit accusing the three biggest credit rating agencies of
assigning "wildly inaccurate and unreasonably high" ratings,
causing $1 billion of losses.
A San Francisco superior court judge on April 30 ruled in
favor of the pension fund, the California Public Employees'
Retirement System, in rejecting a request by Moody's Investors
Service, Standard & Poor's and Fitch Ratings to dismiss a claim
of negligent misrepresentation, CalPERS said on Tuesday.
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 subprime mortgages and collateralized 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
CalPERS said it provides retirement benefits to about 1.6
million public employees in California, and oversaw about
$201.6 billion of assets as of Feb. 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 that 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.
Critics say rating agencies fueled a credit crisis by long
assigning unreasonably high ratings to risky debt in order to
win more business from issuers, which pay them for ratings.
Moody's, S&P and Fitch face similar investor lawsuits in
Manhattan federal court. One judge in that court, Jed Rakoff,
in late March dismissed a class-action lawsuit accusing Moody's
and S&P of defrauding investors about the safety of $63.4
billion of mortgage debt [ID:nN01127170].
Connecticut Attorney General Richard Blumenthal and Ohio
Attorney General Richard Cordray have sued Moody's and S&P over
their ratings, and Cordray also sued Fitch.
California Attorney General Jerry Brown, meanwhile, last
month sought a court order to force Moody's to comply with his
office's subpoena for information about its rating practices.
Moody's is a unit of Moody's Corp (MCO.N), S&P is a unit of
McGraw-Hill Cos MHP.N and Fitch is a unit of France's Fimalac
The case is California Public Employees' Retirement Systems
v. Moody's Corp et al, Superior Court of California, San
Francisco County, No. 09-490241.
(Reporting by Jonathan Stempel; Editing by Richard Chang)