Standard & Poor’s, Moody’s Investors Service and Fitch Ratings must face a CalPERS lawsuit claiming their faulty risk assessments on structured investment vehicles caused $1 billion in losses.
A state court judge in San Francisco rejected the companies’ requests to dismiss claims of negligent misrepresentation made by the $213.3 billion California Public Employees’ Retirement System, Sacramento, Brad Pacheco, a CalPERS spokesman, said Tuesday in a telephone interview.
California Superior Court Judge Richard Kramer on April 30 did toss out a claim of negligent interference but said CalPERS could renew that claim later, Mr. Pacheco said.
CalPERS sued the three major bond-rating companies for $1 billion in losses it said were caused by “wildly inaccurate” risk assessments. They used methods to analyze medium-term notes and commercial paper that were “seriously flawed in conception and incompetently applied,” CalPERS said in its lawsuit filed July 9.
The companies all gave their highest ratings to Cheyne Finance, Stanfield Victoria Funding and Sigma Finance, prompting CalPERS to invest in them in 2006, the fund said in its complaint. The SIVs collapsed in 2007 and 2008, defaulting on payments to CalPERS, the pension fund said, claiming the underlying assets of the three firms consisted primarily of risky subprime mortgages.
Moody’s, S&P and Fitch face similar lawsuits by institutional investors in federal court in New York. The companies have denied wrongdoing.
“We are pleased that the judge granted our motion to dismiss the claim of negligent interference with prospective economic advantage,” Frank Briamonte, a spokesman at S&P parent McGraw-Hill, wrote in an e-mail response to questions. “We are confident that when the court considers more than the plaintiff’s baseless allegations — which it was required to accept as true at this preliminary stage of the case — it will be apparent that the facts and applicable law do not support the claim and we will prevail.”
David Weinfurter, a spokesman at Fitch, wrote in an e-mail that the company believes “the CalPERS claim is fully without merit and we will continue to defend it to the fullest extent.”
Michael Adler, a Moody’s Corp. spokesman, said in an e-mail that the company was pleased by the dismissal of one claim. “We continue to believe the case is without merit, and we are confident that the remaining claim will be dismissed once the court is presented with the facts in the case,” he said.