Cordray announces lawsuit against 3 national-ratings agencies

By Marc Kovac

COLUMBUS — Attorney General Richard Cordray has filed suit against three national-ratings agencies that he said were “central players” in hundreds of millions of dollars in losses suffered by state pension funds invested in mortgage-backed securities.

In a press conference near the Statehouse on Friday, Cordray said Standard & Poor’s, Moody’s and Fitch accepted fees from the securities issuers, then gave high ratings to the investments, indicating they were safe with a low risk of default.

Ohio’s five employee retirement and pension funds — they cover teachers, firefighters, police officers and other public employees — lost more than $457 million in related investments when the housing market collapsed and mortgage foreclosures accelerated, Cordray said.

“Investments in mortgage-backed securities were nowhere near as safe as the rating agencies assured investors they would be,” he said. “In other words, the rating agencies sold out, and they sold us out. They traded in their objectivity and in exchange received massive profits.”

Ohio is the second state to sue the ratings agencies: California filed a comparable lawsuit earlier this summer. The new complaint was filed Friday in U.S. District Court in southern Ohio.

Cordray said the state is seeking “hundreds of millions of dollars” to be repaid to the retirement systems, plus potential governance changes to the agencies.

“We are going to work to hold Wall Street accountable,” Cordray said. “And to the extent they violate the law they have to be held to account just like everybody else would be and to the extent that their violations of law damage people, those people are entitled to compensation, and that’s especially so when we’re talking about investors and retirees and members of our pensions systems in Ohio.”