Ohio’s attorney general Richard Cordray sued Standard & Poors, Moody’s (MCO) and Fitch Ratings on Friday, accusing all three rating agencies of providing false and misleading credit ratings that cost state funds hundreds of millions of dollars.
Noting his reasons for bringing this lawsuit, Mr. Cordray said the rating agencies were central players in causing the worst economic crisis in Ohio since the Great Depression.
“[They] assured our employee pension funds that many of these mortgage-backed securities [MBS] had the highest credit ratings and the lowest risk”, Mr. Cordray said in a statement. “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.”
The suit, which was filed in the Southern District of Ohio on behalf of five Ohio funds that claim they lost nearly half a billion because of misleading ratings of mortgage-backed securities, alleges also that the rating agencies gave many of these exotic investments a triple-AAA rating, the highest investment-grade credit rating given to the safest corporate bonds.
The securities then plummeted in value as the housing market collapsed and mortgage foreclosures accelerated.
“Public statements and testimony indicate that rating agency executives and analysts knew their ratings of [MBS] were wrong. Indeed, one rating agency analyst admitted that the market for mortgage-backed securities was “little more than a house of cards”, said Cordray, a former state and county treasurer.
Ohio’s lawsuit is the latest in a string of actions against the ratings agencies, which have been criticized for making misleading evaluations of MBS due in part to the lucrative fees they received from the same issuers they were supposed to be objectively evaluating.
Attorney General Cordray’s fight to hold Wall Street accountable now includes eight major lawsuits, which have recovered more than $2 billion to date.