CalPERS nets $130m as Moody’s settles mortgage case

CalPERS nets $130m as Moody’s settles mortgage case

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Moody’s will hand over $130m to settle a lawsuit by the California Public Employees’ Retirement System alleging the credit rating agency negligently gave strong scores to bad investments.

The case stemmed from Moody's erroneous ratings of "AAA" rated structured investment vehicles pre-2008. 

CalPERS - the second largest public pension fund in the US - reached a similar settlement with Standard & Poor's last year for $125m. 

When combined the settlements rank as the largest known recovery from Moody's and S&P in a private lawsuit for civil damages.

The case also resulted in a landmark court decision that rating agencies can be liable for negligent misrepresentations under California law for their ratings of privately-placed securities.

"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 it sustained losses from investments in three structured investment vehicles that relied on the liquidity of assets that turned out to be illiquid, including subprime residential mortgage-backed security (RMBS).

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.

"This should serve as a cautionary reminder to all investors who rely on rating agencies to guide their investments," Jacobs added.

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