One day after the federal government sued Standard & Poor's over its ratings of mortgage-backed securities, California's attorney general filed her own case blaming S&P for heavy investment losses suffered by the state's two public pension funds.
Attorney General Kamala Harris today sued S&P, saying its "intentionally corrupted" ratings process cost CalPERS and CalSTRS a combined $1.36 billion.
Harris' lawsuit in San Francisco Superior Court said the two pension funds relied on the "AAA" ratings assigned to securities by S&P.
"S&P's ratings had a natural tendency to influence, and did influence," the two funds' investment decisions.
CalPERS and CalSTRS invested in a slew of AAA-rated mortgage-backed securities and related products known as structured investment vehicles. CalPERS lost $1.32 billion on the investments and CalSTRS lost $39 million, according to court papers.
CalPERS filed its own lawsuit in 2009 against S&P and the other two big rating agencies, Moody's and Fitch, over a group of investments that cost the pension fund about $1 billion. Those same investments were cited by Harris in her lawsuit today.
CalPERS settled with Fitch in 2011 with the firm paying no money but agreeing to hand over certain confidential documents. The case is pending against the other two firms, said CalPERS spokesman Brad Pacheco.
Late Monday, the federal government sued S&P in U.S. District Court in Los Angeles. S&P said the case was "entirely without factual or legal merit."
Reacting to the California suit, and cases filed by other states, S&P today said: "Although we deeply regret that these...ratings did not perform as expected, 20/20 hindsight is no basis to take legal action against the good-faith opinions of professionals."