Sept. 17 (Bloomberg) -- California will investigate credit rating companies’ evaluations of asset-backed securities, and the role their ratings played in the deepest recession since the Great Depression, the state’s top lawyer said.

California Attorney General Jerry Brown said he issued subpoenas today to Moody’s Investors Service Inc., Standard & Poor’s and Fitch Group Inc.

The investigation will determine whether the companies violated state law when they “gave their seal of approval, their highest ratings,” to securities that fell so much in value that they “ruined life savings and put people into foreclosure,” Brown said at a news conference in San Francisco.

Brown is directing the companies to provide information by Oct. 19 to show whether they failed to do adequate due diligence or gave high ratings to particular securities when they knew or should have known the ratings weren’t warranted. Unlike investor suits filed in federal court, the probe may have “consequences that will be unique to California law,” Brown said.

The announcement follows a federal judge’s ruling this month rejecting arguments by Moody’s and S&P that investors can’t sue over deceptive ratings of private-placement notes because those opinions are protected by free-speech rights.

The ruling forces the companies to respond to fraud charges in a class-action lawsuit filed in New York by investors claiming the raters hid the risks of securities linked to subprime mortgages.

Calpers Suit

In July, the California Public Employees’ Retirement System, the largest U.S. public pension fund, sued Moody’s, S&P and Fitch in state court in San Francisco for $1 billion in losses over “wildly inaccurate” risk assessments. The companies face a similar suit, filed in federal court in Sacramento, California, over bond ratings.

Investors in those cases are limited to suing over securities they held, and must prove they have a legitimate case before requesting subpoenas, California Deputy Attorney General Kathrin Sears said in an interview. As a representative of the state, Brown’s office can issue administrative subpoenas inquiring about a wide range of possible violations of California’s unfair and false advertising laws, she said.

“We have a very broad mandate in issuing subpoenas and asking questions,” Sears said. “It’s an investigatory tool. We want to explore practices.”

Michael Adler, a spokesman for Moody’s in New York, said the company has received requests “from various state and regulatory authorities seeking information about our ratings.”

“We will review this inquiry once it’s received and offer our cooperation as appropriate,” Adler said. He declined to identify the other authorities that made such inquiries.

“We have yet to receive a subpoena, so we cannot comment at this time,” David Wargin, a spokesman for S&P in New York, said in an e-mailed statement.

Fitch spokesman Kevin Duignan didn’t immediately return a phone call seeking comment.

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net.

Last Updated: September 17, 2009 16:35 EDT