Calif. High Court Rules CalPERS Can Sue Credit Agencies for Losses
On Wednesday, the California Supreme Court ruled that CalPERS can continue a lawsuit against Moody's Investors Service and Standard & Poor's over a more than $1 billion investment loss, the San Francisco Chronicle reports.
Details of Losses
In 2006, the pension fund lost $1.3 billion after investing in three products that had received the highest credit ratings from the two agencies, according to the suit. The products were from:
- Cheyne Finance;
- Sigma Finance; and
- Stanfield Victoria Funding.
Details of Lawsuit
In the lawsuit, CalPERS said the agencies failed to inform the pension fund that the products largely were composed of high-risk subprime mortgages. In addition, CalPERS said the agencies' fee agreements only included full payments if passing grades were issued.
In response, the credit agencies said the lawsuit violates their First Amendment rights and interferes with federal regulatory authorities. However, a state appeals court in May rejected those arguments and said the case could continue.
This week, the state Supreme Court unanimously declined to review the rating agencies' appeal (Egelko, San Francisco Chronicle, 9/10).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.