Connecticut Suit Against Ratings Agencies May Proceed

August 23, 2010

Lawsuits by the Connecticut Attorney General accusing three credit ratings agencies with giving artificially low credit ratings to municipalities can proceed in a Connecticut state court, a judge ruled.

In a ruling made public Friday, Connecticut Superior Court Judge Robert Shapiro denied a motion by McGraw-Hill Co’s Standard & Poor’s to dismiss the case and litigate in New York instead of Connecticut.

Attorney General Richard Blumenthal, the Democratic Senate candidate from Connecticut, had also sued Moody’s Corp and Fimalac SA’s Fitch Ratings. Those companion cases would also proceed, his office said in a statement.

Michael Adler, a spokesman for Moody’s, said: “The court decision today addressed neither the merits of the case nor Moody’s specifcally.”

He added: “We continue to believe that the Connecticut attorney general’s suit is without merit and we remain confident we will prevail once we have an opportunity to present the facts of the case.”

Representatives for the other agencies could not immediately be reached for comment.

In his Aug. 18 decision, the judge said the prosecutor had the right to enforce the case in Connecticut and that it would be “unreasonable” for the court “to decline to exercise its jurisdiction in the particular circumstances of this case.”

Blumenthal’s office alleged that “deceptive” ratings cost taxpayers millions of dollars. It said lower ratings were given to bonds issued by states, municipalities and other public entities compared to corporate and other forms of debt with similar or worse rates of default.

“Connecticut’s cities and school districts have been forced to spend millions of dollars, unconscionably and unnecessarily, on bond insurance premiums and higher interest rates as a result of deceptive and deflated credit ratings,” the prosecutor said in a statement.

The case is State of Connecticut v The McGraw-Hill Companies Inc, Connecticut Superior Court No. 08-4038927.

(Reporting by Grant McCool and Jonathan Stempel, editing by Leslie Gevirtz and Carol Bishopric)

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