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  • Hector Amezcua / The Sacramento Bee

    Attorney General Kamala Harris talks at a cancelled hearing to push forward a package of bills to overhaul the mortgage industry, including measures that would extend to all companies the rules Harris won in a high-profile court settlement earlier this year.

CalPERS lawsuit against Wall Street ratings agencies survives

Published: Tuesday, May. 27, 2014 - 11:02 am

CalPERS has defeated a bid by Wall Street’s leading credit ratings agencies to toss out the pension fund’s lawsuit over a $1 billion investment loss.

The ruling Friday by the state 1st District Court of Appeal means CalPERS can continue to pursue its case against Moody’s Investors Service and Standard & Poor’s. Without offering an explanation, the court upheld a 2012 lower-court ruling that kept the CalPERS lawsuit alive.

The case stems from a disastrous $1 billion investment the California Public Employees’ Retirement System made in 2006 in three deals known as “structured investment vehicles,” a blend of assets including mortgage-backed securities and car loans. In its lawsuit, the pension fund said it understood little about what was in the investment vehicles but invested because they carried the “highest credit ratings” from Moody’s, S&P and a third agency, Fitch Ratings.

The investments imploded, and CalPERS lost its money and took the three agencies to court in 2009. Fitch agreed to a settlement in 2011, in which the ratings agency paid no damages but gave CalPERS certain confidential documents that it could use to pursue S&P and Moody’s.

Separately, California Attorney General Kamala Harris has sued S&P over a group of failed investments made by CalPERS and the teachers’ pension fund, CalSTRS. The lawsuit blamed S&P for nearly $1.4 billion in losses, most of them at CalPERS.

Both suits were filed in San Francisco Superior Court.

Call The Bee’s Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.

Read more articles by Dale Kasler

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