On November 20, 2009, Ohio Attorney General Richard Cordray filed a lawsuit against national credit rating agencies Standard & Poor's, Moody's and Fitch. The complaint alleges the rating agencies wreaked havoc on U.S. financial markets by providing unjustified and inflated ratings of mortgage-backed securities in exchange for lucrative fees from securities issuers.
In a written statement, Attorney General Cordray noted his reasons for bringing this lawsuit: "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."
The complaint alleges the rating agencies gave many mortgage-backed securities the highest investment-grade credit rating. This rating -- often referred to as "AAA"-- is consistent with the credit ratings given to the safest corporate bonds, and it assured institutional investors, including a number of Ohio pension funds, that the investments were extremely safe with a very low risk of default. The Ohio funds have lost in excess of $457 million in investments in mortgage-backed securities that were improperly rated by the rating agencies.
The lawsuit, filed in federal court in Ohio, is being brought on behalf of 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.
Lieff Cabraser Heimann & Bernstein, LLP, Entwistle & Cappucci LLP, and Schottenstein Zox & Dunn Co., LPA are assisting the Ohio Attorney General in the prosecution of the litigation.
