Ratings by Moody's Investors Service, Standard & Poor's and Fitch Ratings are protected speech, a California judge said in a tentative ruling in a $1 billion lawsuit filed by CalPERS against the companies.
Judge Richard Kramer in San Francisco state court on Friday said the companies' ratings of three structured investment vehicles in which CalPERS lost money are a form of speech about an issue of public interest that is protected under a California law designed to fend off cases meant to chill public debate.
The law aims to protect “good guys” trying to exercise free speech from their adversaries who seek to quell the speech by filing meritless lawsuits, Mr. Kramer said.
“There is a public interest in the country's economy and the types of investment opportunities that exist,” Mr. Kramer said. “They are potentially good guys here.”
The $215 billion Sacramento-based California Public Employees' Retirement System sued the three bond-rating companies in July 2009 for losses it said were caused by their “wildly inaccurate” risk assessments on three SIVs. They had received the companies' highest ratings in 2006, but collapsed in 2007 and 2008, according to CalPERS' complaint.
Moody's and the two other ratings companies are seeking to have the case dismissed under a 1992 California law passed in response to lawsuits filed by real estate developers and other businesses against people opposing their projects. The law bans “strategic lawsuits against public participation.”
The ruling doesn't end the case, Mr. Kramer said.
CalPERS officials said they will be reviewing the decision, said Clark McKinley, system spokesman.
Randy Diamond contributed to this story.