CalPERS said Wednesday it has agreed to a $130 million settlement with one of the top Wall Street credit-ratings agencies over a disastrous series of investments made during the housing bubble.
The settlement with Moody’s Investors Service ends CalPERS’ quest to be compensated for investments made 10 years ago in a group of mortgage-backed securities and other consumer loans. Along with a settlement last year with Standard & Poor’s for $125 million, CalPERS recouped $255 million, or about 25 cents on the dollar on its $1 billion in claimed losses.
“This resolves our lawsuit against Moody’s and restores money that belongs to our members and employers,” CalPERS General Counsel Matthew Jacobs said in a prepared statement. “We are eager to put this money back to work to help ensure the long-term sustainability of the fund.”
In 2006, when financial markets were booming, the California Public Employees’ Retirement System put $1.3 billion into something called “structured investment vehicles,” a blend of various loans to consumers for cars, houses and other assets. When the investment vehicles collapsed, CalPERS said it lost about $1 billion and filed suit in 2009 against Moody’s, S&P and Fitch Ratings.
The lawsuit said CalPERS knew very little about what was in the investment vehicles and relied on the “highest credit ratings” from the three credit agencies. Instead of high-quality assets, the vehicles were a collection of subprime loans and other toxic assets, according to its lawsuit.
It was one of the earliest cases filed against the big Wall Street credit firms over the gold-plated ratings they assigned to highly risky securities during the bubble.
Fitch settled with CalPERS early on, paying no money but agreeing to help the pension fund with its case by handing over certain confidential documents.
Critics said CalPERS had no business investing in deals that were so murky.
Moody’s spokesman Michael Adler said the settlement “is in the best interest of our company and its shareholders.”