Connecticut Attorney General Richard Blumenthal sued rating agencies Moody’s Investors Service (MCO) and Standard & Poor’s on Wednesday, over ratings the agencies issued on investments backed by subprime loans.
According to Mr. Blumenthal’s lawsuits, filed in state court in Connecticut, both agencies used “deceptive and misleading” tactics an knowingly assigned “tainted ratings” to these complex and risky investments that pushed the country into recession.
DJ: “Moody’s and S&P violated public trust–resulting in many investors purchasing securities that contained far more risk than anticipated and that have ultimately proven to be nearly worthless,” Blumenthal said in a statement.
Mr. Blumenthal, who called the lawsuit the first of its kind against ratings agencies, added that Moody’s and S&P were swayed by lucrative fees received for rating the debt. Many of the investments were given triple-A ratings during the peak of the housing bubble.
In a statement, Michael Adler, a Moody’s spokesman, said, “The state attorney general’s suit is without merit and we are confident we will prevail once we have an opportunity to present the facts of the case.”
Blumenthal is seeking penalties and fines against both agencies that could reach into the hundreds of millions of dollars.