CalPERS Settles Moody's Negligent Ratings Case for Record $130 Million
March 9, 2016
Communications & Stakeholder Relations
Brad W. Pacheco, Deputy Executive Officer
Contact: Joe DeAnda, Information Officer
SACRAMENTO, CA - The California Public Employees' Retirement System (CalPERS) today announced it has settled its case against Moody's and Moody's Investors' Services (Moody's) for a record $130 million. The case stemmed from Moody's erroneous ratings of "AAA" rated structured investment vehicles prior to the financial crisis. Early in 2015, CalPERS settled with defendant Standard & Poor's (S&P) for $125 million, bringing total recovery from the now-concluded lawsuit to $255 million.
"This resolves our lawsuit against Moody's and restores money that belongs to our members and employers," said Matthew Jacobs, General Counsel for CalPERS. "We are eager to put this money back to work to help ensure the long-term sustainability of the Fund."
CalPERS sued Moody's and other rating agencies in 2009 after the Pension Fund sustained losses from investments in three structured investment vehicles that relied on the liquidity of assets that turned out to be illiquid, such as subprime RMBS, CDOs and other asset-backed securities. In the lawsuit, CalPERS alleged that Moody's made "negligent misrepresentations" by assigning the investments their highest credit rating. This caused significant losses as the market for structured finance securities collapsed in late 2007.
In addition to obtaining a substantial recovery for investment losses, this case was path-breaking in that the settlements rank as the largest known recovery from Moody's and S&P in a private lawsuit for civil damages. The case also established through a landmark appellate court decision that rating agencies can be liable for negligent misrepresentations under California law for their ratings of privately-placed securities.
"This should serve as a cautionary reminder to all investors who rely on rating agencies to guide their investments," Jacobs added.
For more than eight decades, CalPERS has built retirement and health security for state, school, and public agency members who invest their lifework in public service. Our pension fund serves more than 1.7 million members in the CalPERS retirement system and administers benefits for nearly 1.4 million members and their families in our health program, making us the largest defined-benefit public pension in the U.S. CalPERS' total fund market value currently stands at approximately $285 billion. For more information, visit www.calpers.ca.gov.