Connecticut Attorney General Richard Blumenthal has filed suit against Moody’s Investors Service and Standard & Poor’s for allegedly enabling the “worst economic downturn in the nation since The Great Depression” due to their issuance of “tainted” ratings to risky subprime investments.
In two separate suits filed in Hartford District Court yesterday, Blumenthal alleges misconduct by S&P, the McGraw-Hill Co. subsidiary, and Moody’s for their previous questionable actions in rating structured finance securities. The Attorney General states that their “independence and objectivity” was jeopardized by “their desire to earn lucrative fees.”
“These credit rating agencies gave the best ratings money could buy…,” Blumenthal said in the release. “Countless investors and others-including individuals, banks, mutual funds, insurance companies, hedge funds and pension funds — were misled into believing that these credit ratings were independent and objective, and lost money on investments they might have avoided if told the truth.”
Blumenthal called yesterday’s lawsuit an attempt to “stop Moody’s and S&P from deceiving consumers.” Additionally, the state is seeking civil penalties and disgorgement of “ill-gotten profits."
The two suits, which differ from the previous investor-specific suits filed by interested parties and pension funds, is a “sovereign enforcement” action brought under the Connecticut Unfair Trade Practices Act (CUTPA), Blumenthal said.
Additionally, the new litigation proceedings are separate from a July 2008 suit filed against Moody’s, S&P and Fitch Ratings, that alleges the agencies “knowingly gave state and other public entities lower credit ratings as compared to other forms of debt,” the press release said.
In a direct response to Connecticut watchdog’s March 10 filing, McGraw-Hill spokesperson Steve Weiss told ASR sister publication Investment Management Weekly that it believes “the claim has no legal or factual merit. We intend to vigorously defend ourselves against it,” Weiss said, speaking on behalf of the ratings agency.
Calls placed to Moody’s were not immediately returned.
