Ohio Attorney General Richard Cordray has filed a lawsuit against three credit ratings agencies, Standard & Poor's, Moody's and Fitch, for providing unjustified and inflated ratings of mortgage-backed securities, with charges of 'wreaking havoc on U.S. financial markets'.
The lawsuit was filed in the U.S District Court for the Southern District of Ohio on behalf of five Ohio public employee retirement and pension funds representing Ohio Public Employees Retirement System, the State Teachers Retirement System of Ohio, the Ohio Police & Fire Pension Fund, the School Employees Retirement System of Ohio and the Ohio Public Employees Deferred Compensation Program.
The main allegation against the rating agencies is that they gave the highest investment-grade credit ratings as "AAA" to most of these investments, with 'spectacularly misleading evaluations of mortgage-backed securities', partly due to the lucrative fees they received from securities issuers. Preliminary estimates shows that the improper ratings resulted in Ohio Funds losses in excess of $457 million.
Cordray, a former state and county treasurer, specified that these mortgage-backed securities were high-risk investments that lost tremendous value as the housing market collapsed and also increased mortgage foreclosures.
While stating reasons for filing the lawsuit, Cordray said, "The rating agencies were central players in causing the worst economic crisis in Ohio since the Great Depression. The rating agencies assured our employee pension funds that many of these mortgage-backed securities had the highest credit ratings and the lowest risk. But they sold their professional objectivity and integrity to the highest bidder. The rating agencies' total disregard for the life's work of ordinary Ohioans caused the collapse of our housing and credit markets and is at the heart of what's wrong with Wall Street today."
Cordray has now held Wall Street accountable for eight major lawsuits, which have recovered more than $2 billion to date. The lawsuits which have been settled recently include $284.5 million with secondary defendants in a case involving AIG; $400 million with Marsh & McLennan; $475 million with Merrill Lynch; and the cancelling of $922 million in improperly granted stock options to corporate executives at UnitedHealth.
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