The California Public Employees’ Retirement System (CalPERS), represented by Berman DeValerio, has reached a $125 million agreement to settle its 2009 claim that rating agency Standard & Poor’s negligently misrepresented risky structured finance products as “Aaa” prior to the financial crisis.
The individual settlement with Standard & Poor’s and its parent company, McGraw Hill Financial, was announced February 3, the same day CalPERS said it would receive $176 million from a separate lawsuit brought against Standard & Poor’s by the U.S. Department of Justice and 20 state attorneys general. As part of the government settlement, S&P will pay $1.375 billion, half to the DOJ and half to 19 states and the District of Columbia.
Both the public and private lawsuits sought to hold Standard & Poor’s accountable for allegedly negligently high ratings of complex and risky securities prior to the global financial crisis.
CalPERS’ private suit to recover losses on senior notes issued by three Structured Investment Vehicles (SIVs) continues against rating Moody’s Corporation and its affiliate Moody’s Investor Services. The individual suit stems from its 2006 purchases of $1.3 billion in corporate notes issued by SIVs named Sigma, Stanfield Victoria and Cheyne Finance that collapsed in 2007 and 2008. The suit was filed in 2009, before state and federal officials initiated their actions.
“We are pleased we were able to successfully resolve the case against S&P and look forward to pursuing the claims against Moody’s,” said Joseph Tabacco, a partner in Berman DeValerio’s San Francisco office. “Our investigation shows that, rather than acting as watchdogs, the rating agencies pursued profits, hurting CalPERS and many other investors in the process.”
Mr. Tabacco represents CalPERS in the suit, along with Berman DeValerio partners Todd A. Seaver and Daniel E. Barenbaum. The case is in the discovery phase, with both plaintiffs’ and defendants’ attorneys gathering evidence and testimony to prepare for a jury trial, scheduled for May 2016.
The lawsuit, based on California state law claims, took a major step forward in May 2014, when the California Court of Appeals unanimously affirmed a lower court ruling that CalPERS had presented enough evidence to establish a probability of prevailing at trial, and that the rating agencies’ legal defenses, including the First Amendment, would not at this stage immunize the rating agencies from liability.
The early evidentiary test was required because the credit rating agencies had sought to have the case dismissed under the state’s anti-SLAPP law, which is designed to discourage lawsuits that chill free speech but are unlikely to win at trial.
*In August 2017, our firm name changed to Berman Tabacco. Case references and content published before that date may refer to the firm under our prior name, Berman DeValerio.