Rating Agencies Prevail in Pension Fund Lawsuit

A federal appeals court Monday handed the three major rating agencies a victory by upholding a dismissal of a lawsuit brought by five Ohio pension funds that blamed the agencies for major investment losses in mortgage debt after the 2008 market collapse.

The suit, brought in 2009 by five state pension funds and led by the Ohio Police & Fire Pension Fund, said they lost $457 million on mortgage debt between 2005 and 2008 that was rated triple-A by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.

The lawsuit said the agencies played a central role in the losses by assigning top ratings to risky debt to earn more fees from issuers.

The 6th U.S. Circuit Court of Appeals in Cincinnati agreed with U.S. District Court Judge James Graham’s 2011 dismissal of the lawsuit. The ruling upheld the argument that the ratings were “predictive opinions” protected by the First Amendment. Former State Attorney General Richard Cordray originally brought the lawsuit in 2009.

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