CalPERS settles with Moody's for $130 million in ratings case

By James Rufus Koren

MARCH 9, 2016, 3:11 PM

Moody's Corp. will pay $130 million to the California Public Employees' Retirement System to settle allegations that the ratings agency acted negligently by giving top scores to ultimately toxic investments that cost the pension fund hundreds of millions of dollars, CalPERS said Wednesday.

CalPERS sued Moody's and rival ratings agencies Standard & Poor's and Fitch in 2009, saying the agencies gave AAA ratings -- which imply extremely low risk -- to bonds backed by subprime mortgages.

CalPERS, the nation's largest public pension fund, put $1.3 billion into those bonds in 2006, at the height of the subprime-fueled housing boom. When the bonds went bad in the ensuing crash, the fund estimates it lost as much as $1 billion, according to court filings.

In those filings, CalPERS said the ratings agencies' opinions of the bonds "proved to be wildly inaccurate and unreasonably high," and that the methods the agencies used to rate the bonds "were seriously flawed in conception and incompetently applied."

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