CalPERS, Moody’s Settle Suit Over Allegedly Negligent Ratings for $130 Million


Moody’s will pay CalPERS $130 million to resolve a lawsuit that accused the ratings agency of negligently slapping AAA ratings on toxic mortgage-backed securities.

CalPERS estimates it lost $1 billion on those bonds in 2008.

The pension fund announced the settlement on Wednesday.

More from the LA Times:

In [court] filings, CalPERS said the ratings agencies’ opinions of the bonds “proved to be wildly inaccurate and unreasonably high,” and that the methods the agencies used to rate the bonds “were seriously flawed in conception and incompetently applied.”

With today’s settlement, plus a $125-million deal reached with S&P last year, CalPERS’ total settlements related to the $1.3-billion bonds investment stand at $255 million.

“This resolves our lawsuit against Moody’s and restores money that belongs to our members and employers,” said Matthew Jacobs, CalPERS’ general counsel. “We are eager to put this money back to work to help ensure the long-term sustainability of the fund. ”


The Securities and Exchange Commission found in a 2008 report that the agencies had no set procedures for rating mortgage-backed bonds and other now-toxic assets, and that the firms didn’t disclose conflicts of interest.

Read the CalPERS press release here.


Photo by  rocor via Flickr CC License

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