Federal legislators should allow pension funds and other investors to sue credit-rating agencies for failing to conduct reasonable investigations of the information on which they base their securities ratings, the general counsel of the $30 billion Colorado Public Employees Retirement Association testified today before a House panel.
Financial gatekeepers are less likely to engage in negligent, reckless or fraudulent behavior if they are subject to a risk of liability for these behaviors, Gregory W. Smith, general counsel at the Denver-based fund, said in prepared remarks before the House Capital Markets, Insurance and Government Sponsored Enterprises subcommittee.
Ratings agencies, however, are currently immune from such checks, Mr. Smith added.
He also urged lawmakers to strengthen the SECs authority over credit agency conflicts of interest, compensation and disclosure requirements.
Without complete disclosure, investors and the market at large lack the data necessary to assess and compare ratings and rating agencies, Mr. Smith said.
Rep. Paul Kanjorski, D-Pa., the subcommittees chairman, said in a statement the hearings were scheduled because many experts believe that inaccurate ratings by the credit ratings agencies exacerbated our current financial crisis.