In November 2009, then-Ohio Attorney General Richard Cordray (now head of the Consumer Financial Protection Board) filed suit on behalf of state pension funds against the major credit rating agencies for giving high credit ratings to mortgage-backed securities. The suit may have made for good politics (or perhaps not, as Cordray lost re-election), but always legally questionable. A federal district court judge dismissed the case with prejudice, and today the U.S. Court of Appeals affirmed. Here is the summary from Judge Gibbons’ opinion for the unanimous panel.
The plaintiffs to this action are five pension funds operated by the State of Ohio for public employees (the “Funds”). The Funds invested hundreds of millions of dollars in 308 mortgage-backed securities (“MBS”) between 2005 and 2008, all of which received a “AAA” or equivalent credit rating from one of the three major credit-rating agencies (the “Agencies”).1 The value of MBS collapsed during this period, leaving the Funds with estimated losses of $457 million. In an effort to recoup some of these losses, the Funds brought suit against the Agencies under Ohio’s “blue sky” laws and a common-law theory of negligent misrepresentation, alleging that the Agencies’ ratings were false and misleading and that the Funds’ reasonable reliance on those ratings caused their losses. The district court granted the Agencies’ motion to dismiss the entire complaint with prejudice. The Funds now appeal that ruling. For the reasons set forth below, we affirm the judgment of the district court.
Reuters reports on the case here.