Fitch Settles Suit by Calpers Over SIV Ratings; Deal Includes No Payment

Fitch Ratings Ltd. settled negligence claims brought by the California Public Employees’ Retirement System’s over ratings it gave structured investment vehicles that later collapsed, agreeing to provide Calpers with documents from a similar lawsuit pending in New York.

Under the settlement Fitch will make no payment to Calpers, the biggest U.S. pension fund, said Daniel Noonan, a Fitch spokesman. A notice of the settlement was filed Aug. 26, according to state court records in San Francisco.

Calpers sued Fitch, Moody’s Investors Service Inc. and Standard & Poors over ratings for three SIVs -- Cheyne Finance LLC, Stanfield Victoria Funding LLC and Sigma Finance Inc. -- in which Calpers invested $1.3 billion. Fitch will provide Calpers with a copy of its deposition taken in February and other documents it produced in a pending investor lawsuit against Moody’s and Standard & Poor’s filed by Abu Dhabi Commercial Bank over the Cheyne Financie SIV.

Dismissal of Fitch from the California case “will streamline the litigation against” the other two ratings companies, Wayne Davis, a Calpers spokesman, said in an e-mail.

“The dismissal will not impact the case,” said Davis. “Calpers can still fully recover its damages it if prevails against Moody’s or S&P, which will not be able to avoid liability through the Fitch dismissals.”

Fitch denied liability and settled “to avoid the cost and expense of litigation,” according to the settlement agreement.

‘Fitch Is Pleased’

“Fitch is pleased with the resolution of this case and the disposition reached with Calpers,” Noonan said today in an e- mail. Noonan declined to comment about other terms of the settlement.

Calpers claimed in a July 2009 complaint it sustained $1 billion in losses from “wildly inaccurate” risk assessments of three structured investment vehicles, or SIVs. The three ratings services had given the SIVs their highest ratings. The underlying assets of the three SIVs, known only to the SIVs and the ratings companies, consisted primarily of risky subprime mortgages, Calpers said in the complaint. Fitch is a unit of Paris-based Fimlac SA.

A state court judge in San Francisco ruled in December that ratings by the three companies are a form of free speech that is protected under a California law designed to deter lawsuits intended to chill public debate. In the next phase of the case, Calpers must show that it’s likely to win on the merits of its lawsuit to avoid having it thrown out.

Abu Dhabi Commercial Bank alleged in a separate 2008 complaint that Moody’s and Standard & Poor’s “recklessly or negligently” misled investors by placing investment grade ratings on the Cheyne notes.

The case is Calpers v. Moody’s, 09-490241, Superior Court of California, County of San Francisco.

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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