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If California Attorney General Jerry Brown’s investigation into the three major credit rating agencies turns up any violations of California law and sets a legal precedent, will the NCUA file suit to recover losses suffered by Western Corporate Federal Credit Union? That scenario includes an “if” at this point, but both the regulator and CUNA said it’s a possibility. “In connection with any problem case that involves NCUA intervention and significant cost to the NCUSIF, NCUA evaluates all avenues of recovery,” said John McKechnie, director of public and congressional affairs. The NCUA has heard from CUNA on the matter, according to the trade organization. CUNA General Counsel and Executive Vice President Eric Richard said, “We have urged NCUA to take a look at the litigation, in light of recent judicial decisions.” Earlier this month, Brown’s office issued subpoenas to Standard & Poor’s Ratings Services, Moody’s Investors Service and Fitch Ratings, ordering them to provide information on their ratings processes by Oct. 19. The California Public Employees’ Retirement System filed suit July 15 against the three rating agencies over three structured investment vehicles that collapsed in 2007 and 2008 and resulted in a loss to the pension fund of $1 billion. CalPERS alleges the firms committed “negligent misrepresentation” when they published “wildly inaccurate and unreasonably high” ratings on the SIVs. In addition, CalPERS said the three used “flawed assumptions,” failed to consider underlying assets and collected substantial revenue in exchange for high ratings. Attorneys General Andrew Cuomo of New York and Richard Blumenthal of Connecticut have launched investigations into the three agencies. In separate litigation, a federal judge this month ruled that rating agencies do not have blanket First Amendment protection against lawsuits. This may open the door for lawsuits claiming the agencies intentionally inflated ratings on risky investments. When asked his opinion, Brian Hague, president and CEO of CNBS, stressed that he’s no legal expert. However, he said credit unions’ potential to recover losses from rating agencies will depend upon how much money the big three have, “which is certainly less than they had in ’05 and ’06, when issuance was high.” The Overland Park, Kan.-based credit union broker-dealer said he’s always warned investors against relying too much upon rating agencies. He compared the suits to suing college football’s College Bowl Series because a gambler bet on a favored team, but the game produced an upset. However, Hague said, rating agencies do have a fiduciary responsibility, and there is “definitely some justification for going after the rating agencies.” –[email protected]

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