The state Supreme Court has cleared CalPERS to sue Wall Street’s leading ratings agencies over a series of disastrous investments that cost the pension fund more than $1 billion.
Without comment, the court last week dismissed appeals by Moody’s Investors Service and Standard & Poor’s, which were trying to get the case tossed out.
The California Public Employees’ Retirement System poured more than $1 billion into a group of deals known as “structured investment vehicles,” which were a grab bag of mortgage-backed securities and other instruments.
The investments went south and CalPERS sued in 2009, saying it didn’t really understand the investments but committed the money because the deals received the “highest credit ratings” from Moody’s and S&P.
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A third agency, Fitch, settled with CalPERS in 2011. No money changed hands, but Fitch handed over some confidential documents to enable CalPERS to pursue its claims against Moody’s and S&P.
In their defense, Moody’s and S&P have said their ratings are a form of free speech.
State officials are pursuing other claims over the failed structured investment vehicles, or SIVs. Last month, investment bank Morgan Stanley revealed in a Securities and Exchange Commission filing that it might get sued by state officials over the marketing of one of those SIVs, a product developed by a firm called Cheyne Finance.