The California Public Employees’ Retirement System (Calpers), the largest US public pension fund, sued the three major bond-rating companies for $1 billion in losses it said were caused by “wildly inaccurate” risk assessments.

Standard & Poor’s, Moody’s Investors Service and Fitch Ratings used methods to analyse medium-term notes and commercial paper that were “seriously flawed in conception and incompetently applied”, Calpers said in a lawsuit filed in state court in San Francisco.

The companies all gave their highest ratings to Cheyne Finance, Stanfield Victoria Funding and Sigma Finance, prompting Calpers to invest in them in 2006, the fund said in its complaint. The Structured Investment Vehicles collapsed in 2007 and 2008, defaulting on payments to Calpers, it said.

The underlying assets of the three firms, Calpers said, consisted primarily of subprime mortgages. – (Bloomberg)