Ohio AG champions rights of Ohio pensioners

Ohio AG champions rights of Ohio pensioners

What is the epitome of an uphill battle?

That could well be the $457 million question that Richard Cordray, Ohio attorney general and five-time “Jeopardy” champion, will be answering as he fights irregularities in the nation’s credit-ratings system in hopes of restoring massive pension losses to public employees in Ohio.

It’s a fight against seemingly insurmountable obstacles but one that Ohio’s top legal officer should wage passionately and aggressively in the name of fairness for thousands of state teachers and government workers.

Cordray filed a 77-page lawsuit last Friday against three major credit-ratings agencies — Moody’s, Standard & Poor’s and Fitch — charging that they provided “unjustified and inflated ratings of mortgage-backed securities in exchange for lucrative fees from securities issuers.”

The lawsuit contends that the nation’s pre-eminent credit raters “wreaked havoc on U.S. financial markets” by giving exotic and high-risk investments the highest investment-grade credit rating, AAA.

The net result of such avarice: Five Ohio public employment and pension funds have been swindled of $457 million, Cordray argues.

“The rating agencies’ total disregard for the life’s work of ordinary Ohioans caused the collapse of our housing and credit markets and is at the heart of what’s wrong with Wall Street today,” Cordray said.

Tough fight ahead

He is the latest in a growing chorus of critics to challenge the antics of the nation’s long-revered credit-ratings agencies. In July, the California Public Employees Retirement System filed a lawsuit seeking $1 billion in losses it attributed to the inaccurate risk assessments. Other states are likely to follow suit.

The fight by Cordray and others is righteous. But it won’t be won quickly or easily. As The Wall Street Journal reported recently, courts have long held that rating firms are protected against claims of misleading ratings, thanks to judicial rulings that require plaintiffs to show the agencies acted with actual malice – that they knowingly set out to publish false information to hurt others and to line their own pockets. What’s more, Moody’s and company have historically had constitutional protection, under the freedom-of-press defense of the First Amendment.

Nonetheless, there is hope for broad structural reform. Not only have states and state pension funds taken notice of the unseemly business practices of the credit raters, so, too, has Congress.

The Accountability and Transparency in Credit Rating Agencies Act aims to curb such blatantly inappropriate and irresponsible behavior. The legislation, which is gaining bipartisan support, aims to reduce conflicts of interest, stem market reliance on credit-rating agencies and impose a liability standard on the agencies. It also would weaken the credit raters’ constitutional protections by mandating much stricter oversight and accountability.

Hope, too, springs from the courts. In September, a Manhattan federal district court judge ruled that the agencies’ First Amendment protections do not apply when a “rating agency has disseminated [its] ratings to a select group of investors rather than to the public at large.”

In addition to vigorously pursuing his own case against the reprehensible actions of Moody’s, S&P and Fitch, Cordray would be wise to champion the legislative and judicial juggernaut nationwide.

Thousands of public workers in Ohio and millions of them in the nation deserve no less.