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Excerpt:
COLUMBUS, Ohio — The three major credit ratings agencies gave mortgage-backed securities unjustifiably high ratings in return for lucrative fees, losing at least $457 million for five Ohio public employee pension and retirement funds, the state’s attorney general alleged in a lawsuit filed Friday.

Ohio is the second state whose public pension funds have pursued credit rating agencies, after the California Public Employees’ Retirement System sued the agencies in July alleging they caused it more than $1 billion in losses.

Ohio Attorney General Rich Cordray said Friday evidence showed that Moody’s Investors Service, Fitch Ratings, and Standard & Poor’s knew that mortgage-backed securities — in which mortgages were sliced and packaged into securities for investors — were much riskier than the top ratings they gave them.

But because those seeking the specific rating could shop around until they received that rating, rating agencies had a significant financial incentive to give the highest rating so they wouldn’t lose market share, Cordray said.

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