Connecticut AG Sues Ratings Firms

In three separate suits filed yesterday, Connecticut Attorney General Richard Blumenthal has charged Moody's Investors Services, Fitch Ratings, and Standard & Poor's Ratings Services for "systematically and intentionally" giving lower ratings to states, municipalities, and other public entities, according to The Wall Street Journal.

Blumenthal alleged that the ratings firms used a "different and far more difficult rating scale" for public bonds to justify their lower ratings. The complaints were filed in conjunction with the Connecticut Department of Consumer Protection and allege that the ratings firms violated the state's Unfair Trade Practices Act by "intentionally misrepresenting and omitting material fact s that caused bond issuers to in Connecticut to purchase bonds at higher rates."

In the Moody's suit, Blumenthal also alleges that public bonds were underrated to improve sales of its own credit ratings and "to please sophisticated investors."

The WSJ reports that during a conference call yesterday Moody's Chief Executive Raymond McDaniel said the Connecticut suit was "meritless."

 

"We have been very public about the differences and reasons for those differences between the municipal rating scale and the corporate rating scale."

--Moody's CEO Raymond McDaniel

"We  have been very public about the differences and reasons for those differences between the municipal rating scale and the corporate rating scale," he said.

In that same report, Fitch said it would report tomorrow the results of a months-long internal review of its municipal finance framework. 

McGraw Hill, which owns S&P, said in a statement that the AG's claims violate the First Amendment and would result "in an erosion of analytical independence and undermine investor confidence in the market...S&P is committed to providing investors and the market with independent and quality ratings opinions."