California attorney general sues Standard & Poor's
Published: Tuesday, February 5, 2013 at 12:05 p.m.
Last Modified: Tuesday, February 5, 2013 at 12:05 p.m.
SAN FRANCISCO — California's attorney general on Tuesday joined the U.S. Department of Justice and several other states in accusing the debt rating agency Standard & Poor's of inflating its ratings of certain investments, costing the state's public pension funds and other investors billions of dollars.
The state's accusations were made in a lawsuit filed in San Francisco Superior Court. The civil charges mirror the allegations the U.S. Department of Justice made in a federal lawsuit filed Monday in Los Angeles, accusing the company of fraud for giving high ratings to risky mortgage bonds that helped bring about the financial crisis.
The DOJ announced its lawsuit at a Washington D.C. press conference Tuesday.
California Attorney General Kamala Harris joined the Justice Department at the press conference along with attorneys general from California, Connecticut, Delaware, the District of Columbia, Illinois, Iowa and Mississippi, who have filed or will file separate, similar civil fraud lawsuits against S&P. More states are expected to sue, the Justice Department said.
The California lawsuit alleges that rating company's action led to the California Public Employees Retirement System and the California State Teachers Retirement System losing a combined $1 billion.
S&P, a unit of New York-based McGraw-Hill Cos., has denied wrongdoing.
California's complaint alleges that Standard and Poor's violated state laws by using a ratings process based on what senior executives described as "magic numbers" and "guesses."
Harris says California law allows the state to triple any damages a San Francisco jury may award if her case goes to trial.
"For years, S&P placed its priority on maintaining its market share, instead of the investors who trusted in its supposedly objective ratings," Harris said in a statement announcing the lawsuit. "When the housing bubble burst, S&P's house of cards collapsed and California paid the price — in billions."
From 2004 to 2007, S&P systematically misrepresented to the public and the state's public pension funds that its ratings of structured finance securities were based on an independent, objective and reliable analysis, and not influenced by its economic interests, the complaint alleges.
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