While Securities and Exchange Commission chairman Mary Schapiro told a congressional panel that she believes proposals to impose liability standards on ratings agencies could benefit investors, according to the Wall Street Journal, CalPERS has taken further steps with a lawsuit against the big three agencies.
Schapiro displayed her support for proposals that would make it easier for investors to interpret ratings. The SEC is also considering ways to curb the practice of issuers “shopping” for the best rating as it explores ways to curb conflicts of interest and improve transparency and accountability by ratings companies, she said.
Schapiro firmly believes that imposing liability on the firms could “certainly make a very big difference.” She also informed lawmakers that the SEC is exploring ways to curtail “rating shopping,” in which debt issuers seek the best possible ratings from a variety of firms.
Meanwhile, the California Public Employees’ Retirement System filed a lawsuit lastweek alleging that the “big three” credit ratings agencies gaveimproperly high ratings to certain securities packages. According tothe New York Times, the overly optimistic ratings led to losses of $1 billion at the fund after the investment vehicles collapsed last year.
Thesuit targets the chief credit ratings agencies—Moody’s, Standard &Poor’s, and Fitch— and alleges that the firms gave top ratings to aseries of faulty structured investment vehicles. CalPERS purchased $1.3billion of these vehicles in 2006.
The pension fund also saysthat conflicts of interest are rampant among the credit agencies, andthat the three firms were “actively involved” in the creation andselling of the investment packages. “The ratings agencies no longerplayed a passive role but would help the arrangers structure theirdeals so that they could rate them as highly as possible,” reads thelawsuit.
CalPERS did not specify what kind of damage payments it was seeking.