Standard & Poor’s and Moody’s Investors Service Inc. lost a bid to overturn a judge’s ruling that they must face a California Public Employees Retirement System lawsuit over ratings on investments that led to $800 million in losses.
An appeals court in San Francisco upheld state court Judge Richard Kramer’s decision in 2012 rejecting the rating companies’ request to dismiss the case under a California law designed to block lawsuits filed to retaliate against opponents and chill public debate.
Kramer’s order denying the company’s anti-SLAPP motion “ is affirmed in full,” a three-judge appeals court panel said yesterday, using the acronym for strategic lawsuit against public participation. The panel didn’t give a reason for its decision.
McGraw Hill Financial Inc. (MHFI)’s S&P and Moody’s had argued that their ratings on investments the pension fund bought were predictions covered by free speech protections and the lawsuit should be barred under the California anti-SLAPP law.
Money managers for Calpers, the largest U.S. pension fund, put $1.3 billion into three investment vehicles backed by subprime mortgages in 2006 and 2007.
The investments crumbled amid the housing crisis, according to court filings. Calpers sued the ratings companies in 2009 alleging its losses were caused by inaccurate risk assessments. The ratings companies helped create the investments and bent rules to give them the highest ratings to boost their profits from issuers, Calpers alleged.
S&P is being sued separately for fraud in federal court in Santa Ana, California, by the U.S. Justice Department, which accuses the company of lying about its ratings being free of conflicts of interest and may seek as much as $5 billion in penalties. The ratings service faces similar lawsuits by U.S. states, including one by California Attorney General Kamala Harris. A state judge in San Francisco refused in March to dismiss claims in that lawsuit.
The case is Calpers v. Moody’s, A134912, California Court of Appeals, First District (San Francisco).
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