COLUMBUS, Ohio (CN) - Ohio's attorney general sued Standard & Poor's, Moody's and Fitch Ratings on Friday, claiming they gave misleading credit ratings of mortgage-backed securities that cost the state at least $457 million. The ratings agencies have been criticized for feeding the housing slump and credit crisis by giving high ratings to risky securities that later diminished in value.
Richard Cordray says in his 77-page federal lawsuit that the rating agencies "falsely represented that their ... credit ratings were independent, objective and based upon thoughtful and adequate methodologies. In truth, the rating agencies subverted those principles and negligently provided unjustified and inflated ratings in exchange for the lucrative fees" paid by issuers of asset-backed securities.
Cordray says the state funds bought residential mortgage-backed securities and commercial mortgage-backed securities between 2005 and 2008 "in reliance on the false and misleading" credit ratings that were assigned by Standard & Poor's, McGraw-Hill, Moody's and Fitch Inc.
Cordray filed the federal lawsuit on behalf of five state funds: the Ohio Police and Pension Fund, the Ohio Public Employees Retirement System, the State Teachers Retirement System of Ohio, the School Employees Retirement System of Ohio and the Ohio Public Employees Deferred Compensation Program.