JEFFERSON CITY - A move designed to recover losses to state pension funds made by two states will not be requested on behalf of Missouri state employees.
The attorneys general of Ohio and Connecticut have sued three of the largest credit rating agencies on behalf of their state employees' pension funds. Chris Rackers, manager of investment policy and communication for MOSERS, the state employees' pension fund, said the fund is not considering asking Missouri's Attorney General Chris Koster to do the same.
The lawsuits from Ohio and Connecticut focus on ratings for investments that involved mortgage-backed securities. Rackers said MOSERS held investments in mortgage-backed securities, these investment came from external managers. The external managers, she said, have told the fund that their investment decisions were made independent of credit rating agencies, instead using their own internal "underwriting for risk and stress testing."
The three credit rating companies being sued by Ohio and Connecticut are Standard and Poor's, Moody's Corp. and Fitch. According to Ohio Attorney General Richard Cordray, the three agencies provided "unjustified and inflated ratings of mortgage-backed securities in exchange for lucrative fees from securities issuers."
Nanci Gonder, a spokeswoman for Koster's office, said, "We are concerned about the allegations raised in the state of Ohio's action and are reviewing the claims."
David Steelman, a MOSERS board member, said he currently had no opinion on a possible lawsuit against credit rating agencies. Describing the move as "controversial," Steelman said it was one of a multitude of options the board could possibly consider. Steelman said he would withhold his judgment on the issue until the board hired an outside legal counsel.
MOSERS board members decided to establish a procedure to hire outside legal counsel during their Nov. 19 meeting, according to a release on the fund's Web site. This counsel would monitor losses that might arise from violations of federal or state securities laws. This counsel would not, according to the release, attempt to litigate for past market losses.
Steelman said he hopes practices for hiring this counsel will be in place by the next board meeting, but added that "I'm only one of 11 board members."
A paper published in November 2008 by the Brookings Institute -- a think tank based out of Washington, D.C. -- said that securities consisting of sub-prime mortgages and the failure to adequately assess the risk of these securities were two of the causes of the current financial crisis.
MOSERS, however, was not negatively affected by mortgage-backed securities, Rackers said. Citing internal performance yardsticks over the last year and a half, Rackers said the fund did not attribute investment losses to the securities.
As previously reported, taxpayers will be required to contribute $20 million more to the state's employee pension fund due to losses from investment by the fund. The fund announced last month that it had begun to recover from investment losses, making almost $1 billion in investment earnings over the last nine months.
MOSERS will hold its next board meeting at 1 p.m. on Jan. 21 in Jefferson City.