Nov. 20 (Bloomberg) -- Standard & Poor’s, Moody’s Corp. and Fitch Inc. were sued by Ohio Attorney General Richard Cordray, who said the three companies disregarded their responsibility to provide “accurate credit ratings of investments.”

“The rating agencies made spectacularly misleading evaluations of mortgage-backed securities due in part to the lucrative fees they received from the same issuers they were supposed to be objectively evaluating,” Cordray said in a statement.

The attorney general filed his 77-page complaint against the New York-based firms today in federal court in Columbus, Ohio’s capital.

The lawsuit, filed on behalf of five Ohio public employee retirement and pension funds, names as defendants McGraw-Hill Cos. and its Standard & Poor’s Financial Services unit, two Moody’s entities and Fitch.

“According to preliminary estimates, the improper ratings cost the Ohio funds losses in excess of $457 million,” Cordray said in the statement.

Cordray accused the firms of negligent misrepresentation and violation of the state’s securities laws. He seeks a court order permitting the pension funds to rescind their purchases of any affected securities plus unspecified money damages.

The funds, relying on high ratings that Cordray called misleading, bought the mortgage-backed securities, both residential and commercial, from January 2005 to July 2008.

AAA Ratings

“When the housing and credit markets finally collapsed, the flaws in the defendants’ AAA ratings gradually became clear,” according to the complaint.

“We believe the claim has no legal or factual merit and we intend to defend ourselves vigorously,” Steven Weiss, a McGraw- Hill spokesman, said in a phone interview.

The SEC has examined S&P’s practices, Weiss said, and found “no evidence that decisions about ratings methodologies or models were based on attracting or losing market share.”

Michael Adler, a Moody’s spokesman, also said the attorney general’s claim was unfounded.

“Our ratings were and continue to be based on clearly defined and publicly disclosed methodologies,” Adler said in a phone interview. Cordray, he added, was “seeking new scapegoats for investment losses,” rather than engaging in a dialogue about those ratings.

Fitch spokesman Kevin Duignan declined to comment, saying that the firm had yet to see the attorney general’s filing.

Writedowns, Losses

The ratings services have been criticized by investors and lawmakers including Senate Banking Committee Chairman Christopher Dodd, who has said the companies wrongly assigned top credit rankings to U.S. subprime-mortgage bonds just before that market collapsed in 2007. Defaults on the debt ignited a credit crisis that has led to more than $1.7 trillion in writedowns and losses since the start of 2007.

The companies have fought lawsuits by arguing that the letter grades they assign to bonds to predict the risk of default are opinions protected by the First Amendment of the Constitution.

Moody’s fell 24 cents, or 1 percent, to $22.95, in New York Stock Exchange composite trading. McGraw-Hill fell 74 cents, or 2.3 percent, to $30.99.

Financiere Marc de Lacharriere SA, or Fimlac, the Paris- based corporate parent of Fitch, fell 35 cents to 36.75 euros in trading in Paris.

The case is Ohio Police & Fire Pension Fund v. Standard & Poor’s Financial Services LLC, 09cv01054, U.S. District Court, Southern District of Ohio (Columbus).

To contact the reporter on this story: Andrew M. Harris in Chicago federal court at aharris16@bloomberg.net.

Last Updated: November 20, 2009 16:31 EST