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A San Francisco judge ruled that California's largest public pension fund can pursue rating agencies Moody's and Standard & Poor's over $1 billion in investment losses, rejecting the rating agencies' attempt to characterize the lawsuit as a spurious attack on free speech. Berman DeValerio represents the California Public Employees' Retirement System, or CalPERS, in the 2009 case, which may have broad implications for other investors seeking to hold the rating agencies accountable for their role in the 2008 financial meltdown. "We are pleased that the court has set limits on the ‘free speech' defense so frequently invoked by the rating agencies," said Joseph Tabacco, the Berman DeValerio partner overseeing the case. "We look forward to the opportunity to argue the merits of the case on behalf of CalPERS and its members." In the lawsuit, CalPERS contends that Standard & Poor's and Moody's had no reasonable grounds to give their highest, "AAA" ratings to three opaque structured finance products that, unbeknownst to CalPERS, were filled with high-risk CDOs, subprime mortgages, and other illiquid structured products. Relying on the rating agencies' shoddy analysis, the pension fund invested $1.3 billion in the products - Cheyne Finance, Stanfeld Victoria Funding and Sigma Finance - which collapsed in 2007 and 2008. According to the lawsuit, the agencies were financially incentivized to award their highest ratings to the products because they received significantly higher fees if the products sold. The rating agencies also knew that funds like CalPERS, the only investors large enough to buy such products, require top ratings to do so, the suit contends. The credit agencies had asked Superior Court Judge Richard Kramer to throw out the case under a California law aimed at quickly dismissing groundless lawsuits that quell protected free speech. Though the rating agencies argued in their motion that the complaint was designed to chill speech protected under the law, Judge Kramer ruled that the case could proceed because CalPERS had produced sufficient evidence that its claims could prevail in court. Under the state's anti-SLAPP statute, as the law is known, only cases with little chance of success can be summarily dismissed. Moody's and Standard & Poor's vowed to appeal. This was the second important setback for defendants. In 2010, Judge Kramer overruled defendants' demurrer to have the case dismissed. For a copy of the ruling, click here. For a copy of the operative complaint, click here. |