Los Angeles has accused Ambac Financial, MBIA, XL Capital Assurance, ACA Financial Guaranty, Financial Guaranty Insurance Co. and CIFG Assurance North America of plotting to support a bifurcated system of credit ratings that pressured states and municipalities to buy unnecessary coverage.
Filed in Los Angeles Superior Court by city attorney Rocky Delgadillo, the suit accuses the insurers of violations of state antitrust law, fraud, breach of contract and negligent misrepresentation. The insurers are charged with working alongside major rating agencies to create a dual rating system that uses differing standards to assess whether municipal entries or corporate entities are worthy of credit, a system that would allow municipal issuers to receive a higher credit rating by purchasing a financial guaranty coverage or a credit default swap.
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