Calpers, the biggest U.S. public pension fund, has sued the three largest credit rating agencies for giving perfect grades to securities that later suffered huge subprime mortgage losses.
The California Public Employees' Retirement System said in a lawsuit filed last week in California Superior Court in San Francisco that it might lose more than $1 billion from structured investment vehicles, or SIVs, that received top grades from Moody's Investors Service Inc, Standard & Poor's and Fitch Inc.
SIVs are complex packages of loans and debt, including subprime mortgages and collateralized debt obligations, assembled by investment banks and then sold to investors.
By giving these securities their highest ratings, the agencies "made negligent misrepresentations" to the pension fund, Calpers said. Such ratings, which typically accompany investments with almost no risk of loss, "proved to be wildly inaccurate and unreasonably high."
Calpers, which seeks unspecified damages, had no additional comment on the suit, its timing or why no bank underwriters were named as defendants. Pension spokesman Clark McKinley acknowledged only, "there are a lot of potential targets that we have" in this matter.
All three agencies said they would seek to dismiss the complaint as soon as possible.
After all, the banks weren't gambling with their own money.