Roundly vilified for their role in the financial crisis, the credit-ratings agencies are now the subject of a dose of revenge.

The California Public Employees' Retirement System, or Calpers, one of the country's biggest and most visible institutional investors, has sued the three agencies -- Moody's, Standard & Poor's (owned by McGraw-Hill ( MHP)) and Fitch Ratings -- essentially alleging malfeasance.

In a suit filed Tuesday in California Superior Court in San Francisco, Calpers says the agencies gave their most gold-plated imprimatur to what eventually turned into junk, in all senses of that word: the so-called "structured investment vehicles," those enormous baskets of diseased assets such as subprime mortgages that were securitized and sold to investors, spreading the virus that eventually grew into a pandemic, seriously damaging such behemoth institutions as Bank of America ( BACl), Citigroup ( Cl) and AIG ( AIG).

Though Calpers didn't put a number on the damages it's seeking in the suit, the fund said it bought three SIVs in 2006, spending $1.3 billion on them before they collapsed in value last year.

(Click here to see Calpers' complaintagainst the credit-ratings agencies.)

Calpers, which manages the pensions of about 1.6 million retired California public servants, alleges that the agencies were culpable in that collapse, since the SIVs were so complex and "opaque" that only the agencies and the firms who created the securities truly knew what assets they contained.

In the suit, Calpers said Moody's, S&P and Fitch "gave the SIVs purchased by Calpers their highest credit ratings, and by doing so made negligent misrepresentations to Calpers and Calpers' money manager agents, which have caused and will cause Calpers to suffer substantial investment losses."

The three SIVs Calpers bought were structured by U.K. investment firms Sigma S.I.V and Cheyne Capital Management and the U.S. firm Stanfield Capital Partners. Calpers did not name -- or, at least, hasn't yet named -- those three firms as defendants.

"The credit ratings on the three SIVs ultimately proved to be wildly inaccurate and unreasonably high," Calpers went on in the suit. "The Ratings Agencies' methods used to rate SIVs and their underlying assets were seriously flawed in conception and incompletely applied.

"Moreover, the SIVs, which the Ratings Agencies represented by their 'AAA' credit ratings as most likely able to withstand an economic depression, were structured with Rating Agency participation in a manner that used certain flawed assumptions which ended up ensuring SIVs' collapse when a recession actually occurred."
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