Attorney General Jerry Brown today issued subpoenas to three leading credit rating agencies to find out why they slapped top-notch ratings on mortgage-backed securities that would eventually crash and burn.
"Standard & Poor's, Moody's and Fitch put their seal of approval on high-risk mortgage-backed securities, recklessly giving stellar ratings to shaky assets that proved toxic to the entire financial system," Brown said in a prepared statement. "This investigation is meant to determine how these agencies could get it so wrong and whether they violated California law in the process."
If this type of legal crusade sounds familiar it should. At least three other states’ attorneys general have investigated the relationship between the rating agencies and the securities issuers they evaluated. And numerous pension funds have filed lawsuits, some dating back to 2007, over their losses.
But if Brown is simply jumping on the bandwagon, there’s plenty of room, said Nanci Nishimura, a partner with Cotchett, Pitre & McCarthy, the Peninsula firm that’s handling plenty of credit rating-related litigation these days.
“All the smoke hasn’t even come out of this volcano yet,” Nishimura said. “It’s about time the state started taking notice and started doing something about this.”
Representatives of the three rating agencies either declined to comment or said their companies would cooperate with Brown’s investigation.
Brown has given the agencies until Oct. 19 to respond to his request for information.
— Cheryl Miller
Follow me on Twitter