The Connecticut Attorney General, Richard Blumenthal, recently filed separate complaints against The McGraw-Hill Companies, Inc. (as the parent of Standard & Poor’s), Moody’s Corp., and Fitch, Inc. The complaints were filed in the Connecticut Superior Court, Judicial District of Hartford. Each complaint contains a single count for violation of Connecticut’s Unfair Trade Practices Act (CUTPA).
The main thrust of the allegations against the credit rating agencies is that they intentionally gave lower ratings to bonds issued by the state, municipalities, and other public entities than they gave to corporate bond issuers with an equivalent or higher risk of default. The complaints allege that the purported underrating of governmental bonds resulted in public entities either paying higher interest than they should on bonds or needlessly purchasing bond insurance. The alleged inflated interest payments and unnecessary insurance premiums amount to millions of dollars, which costs are “ultimately borne by Connecticut taxpayers.”
In support of their allegations of intentional under-rating, the three complaints cite the agencies’ own credit studies, which allegedly found that public bonds had significantly lower historical default rates than corporate bonds. Among other relief, the complaints seek restitution, disgorgement, civil penalties, and injunctive relief.