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State pension funds look to recover more after S&P settlement

"Investors relied on these ratings...the collapse of which led to the financial crisis," said Harris

The nation's richest public pension fund was a big winner in the settlement with Standard & Poor's Financial Services over its ratings on mortgage-backed securities lawsuits.

But that doesn't mean that the California Public Employees' Retirement System, with $296.5 billion in assets, has recovered all losses from alleged over-inflated investment ratings that helped spur the worst recession in half a century.

The nearly $1.4-billion settlement Tuesday with U.S. Justice Department officials and 19 state attorneys general provided CalPERS and the California State Teachers' Retirement system with $335 million. All but about $34 million went to CalPERS.

CalPERS recovered $176 million from the multi-state lawsuit and an additional $125 million from a separate complaint it filed against Standard & Poor's, a subsidiary of McGraw Hill Financial Inc.

But CalPERS and CalSTRS, with $188 billion in assets, have a ways to go before they're made whole. Although the state's 2013 lawsuit pegged total losses at $1.36 billion, people familiar with the case, who were not authorized to speak publicly, now estimate that damages could run as high as $1.6 billion.

So far, the state has managed through legal actions to claw back about 70% of the total losses.

Previously, California Atty. Gen. Kamala D. Harris recovered $900 million in compensation for state pension funds stemming from the meltdown of the mortgage market and the subsequent financial crisis leading up to the Great Recession. Those settlements included $300 million from Bank of America Corp., $200 million from Citigroup Inc. and $300 million from J.P. Morgan Chase & Co.

“Investors relied on these ratings to invest in the structured finance securities, the collapse of which led to the financial crisis,” Harris said.

Those packages of loans got high marks from S&P and other rating companies — ratings that prosecutors alleged were fraudulent.

In settling, S&P denied any wrongdoing. Instead, it agreed to a set of facts that indicated it had not been objective in rating some securities, according to Harris' office.

The money from the recent settlement “will be put back to work” to ensure the retirement security of 1.7 million state and local government workers, retirees and their families, said CalPERS Chief Executive Anne Stausboll.

The fund still has pending a related lawsuit against S&P rival Moody’s Investor Services, so CalPERS declined to discuss any lessons learned from the bad investments that had caused the fund to lose about a quarter of its value during the recession.

“I’m sure there will be time for reflection and comment when all of this is resolved,” said CalPERS spokesman Joe DeAnda.

Twitter: @MarcLifsher

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