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The firm's work on behalf of CalPERS against the nation's three major credit rating agencies was recently featured as the cover story in a prominent California legal publication.
The July 12, 2010, issue of The Recorder highlighted the compelling arguments of San Francisco Managing Partner Joseph J. Tabacco, Jr. and the subsequent favorable court ruling that allowed the case to move forward. The article said that the ruling is being used to support lawsuits against the agencies filed elsewhere in the country. Berman DeValerio represents the California Public Employees' Retirement System in the suit, which seeks to hold the credit rating agencies accountable under California law for issuing unjustifiably high ratings for risky structured investment vehicles. The lawsuit, in San Francisco Superior Court, alleges that the agencies - Standard & Poor's, Moody's Investors Service and Fitch - gave "wildly inaccurate" ratings to three structured investment vehicles, or SIVs, resulting in more than $1 billion in losses to CalPERS. Historically, credit rating agencies have relied on First Amendment free speech protections in lawsuits. But this time may be different, the newspaper noted, due to the rating agencies' role in helping to create the structured finance products they subsequently rated for private placement to investors - for huge profits. A widely quoted internal e-mail from an S&P employee was particularly damning: "Rating agencies continue to create an even bigger monster - the CDO market. Let's hope we are all wealthy and retired by the time this house of cards falters." It was punctuated with the symbol for a "smiley face." The Recorder focused in particular on the courtroom arguments between Tabacco and attorney Floyd Abrams, the noted First Amendment expert representing the parent company of S&P. Abrams told Judge Richard Kramer that the ratings of agencies like S&P are protected just as any newspaper story would be. In response, Tabacco argued that the differences "couldn't be starker," noting that the rating agencies worked "hand in glove" with the issuers of the investment vehicles. "Mr. Abrams and his colleagues did a very fine job for decades in asserting that they were just like a member of the financial press," Tabacco argued. He went on to say that the agencies were "highly incentivized" to issue strong ratings so the investments could be marketed to the public. Judge Kramer ultimately rejected the defense's First Amendment argument, overruling the rating agencies' demurrer to have the case dismissed. "This isn't a publicly disseminated opinion," the judge said of their ratings. "This is an economic activity designed for a limited target for the purpose of making money." In recent months, several other plaintiffs have cited Kramer's ruling in similar lawsuits against the rating agencies. For example, Ohio Attorney General Richard Cordray's suit against the agencies on behalf of public pension funds cited the ruling when opposing a discovery stay while the judge considers a motion to dismiss, the newspaper reported. The full article is available here. |