HARTFORD (CN) - Attorney General Richard Blumenthal sued Moody's and Standard & Poor's over the credit ratings they assigned to investment instruments backed by subprime mortgage loans. The lawsuits immediately were attacked as "political grandstanding" by a Republican who, like Blumenthal, is seeking the U.S. Senate seat being vacated by Chris Dodd.
"These credit rating agencies gave the best ratings money could buy - catering to their powerful investment bank clients, rather than objectively rating risky bonds," Blumenthal said in statement.
"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, a Democrat, says his Superior Court complaints are unusual in that they are sovereign enforcement actions brought under the Connecticut Unfair Trade Practices Act, instead of specific investors or pension funds.
But Peter Schiff, the least-known of three Republicans seeking Dodd's seat, called Blumenthal's lawsuits "political grandstanding."
"It's too late," Schiff said. Schiff, president of EuroPacific, a Connecticut investment firm, warned about the current economic crisis at a mortgage brokers convention in 2006.
"Why did Blumenthal wait until now to file this lawsuit?" Schiff said. "Because he's running for the U.S. Senate and sees an opportunity for headlines. If he really wanted to help the Connecticut taxpayers, he would have sued these ratings companies years ago and had the foresight to prevent the housing collapse."
Despite frequent appearances on cable news shows for his financial insight, Schiff is still the least known of the U.S. Senate candidates to Connecticut voters. Blumenthal's two other Republican opponents include former World Wrestling Entertainment CEO Linda McMahon and former U.S. Rep. Rob Simmons.
Blumenthal's complaints seek disgorgement of unjust profits and penalties unfair trade. The lead defendant in the complaint against Standard & Poor's is its corporate parent, McGraw Hill Cos.
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