CalPERS Settles With Fitch Over 'Negligent Misrepresentations'

The largest public pension fund in the US has settled a lawsuit with Fitch Ratings over claims that it, as well as Moody's Investors Service and Standard & Poor's, assigned inaccurate ratings that resulted in massive losses.

(August 30, 2011) — The California Public Employees’ Retirement System (CalPERS), the largest public pension in the US, has settled a lawsuit with Fitch Ratings over claims that it, along with Moody’s Investors Service and Standard & Poor’s, assigned unreasonably high ratings on structured investment vehicles (SIVs).

However, CalPERS litigation continues against Moody’s and Standard & Poor’s, the Wall Street Journal reported.

In July 2009, the scheme sued Fitch, Moody’s, and S&P, in San Francisco County Superior Court claiming that their inaccurate ratings resulted in “hundreds of millions, and perhaps more than $1 billion, of investment losses for CalPERS,” the pension fund alleged in court documents obtained by the WSJ. The fund claimed that it purchased $1.3 billion of debt issued by Cheyne Finance LLC, Sigma Finance Inc, and Stanfield Victoria Funding LLC, which were SIVs that had received “triple-A” ratings. However, the scheme contended that the ratings were inflated and that consequently, the fund suffered huge losses beginning in 2007 when the investments plummeted.

The suit by CalPERS against the three rating agencies — collectively referred to as the Big Three for their market control — reflects how rating agencies are facing heightened pressure and scrutiny for their role in the economic crisis. Many industry sources believe that these agencies, blamed for inflated ratings of risky debt to win more business from issuers, were directly responsible for the credit crisis.

Amid CalPERS’ lawsuit against Fitch, the fund has maintained a high mark from the ratings agency. In recent news, CalPERS kept its AAA credit rating for the pension fund’s credit enhancement program from Fitch Ratings, while the California State Teachers’ Retirement System (CalSTRS) has achieved AA+ in comparison. CalPERS’ exceptionally strong rating was due to its high liquidity funding, underwriting guidelines, and financial condition, the agency noted. “This rating validates the financial strength of CalPERS,” chief investment officer Joseph Dear said in a statement. “Our members and employers can be proud to be part of such a sound organization.”

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href=''></a>; 646-308-2742