Many have been quick to lay blame for the nation’s housing and financial meltdown on the credit rating agency oligopoly, at least in part. But Ohio Attorney General Richard Cordray is one of the first to officially make the allegations in a court of law.

Cordray is suing Standard & Poor’s, Moody’s, and Fitch for allegedly providing inflated ratings of mortgage-backed securities (MBS) in exchange for lucrative fees from the securities issuers the agencies say they were objectively evaluating.

The lawsuit was filed Friday in a U. S. District Court on behalf of five Ohio public employee retirement and pension funds. Cordray says the case is not intended to take on the status of a class-action lawsuit.

“The rating agencies assured our employee pension funds that many of these mortgage-backed securities had the highest credit ratings and the lowest risk. But they sold their professional objectivity and integrity to the highest bidder,” Cordray said. “The rating agencies’ total disregard for the life’s work of ordinary Ohioans caused the collapse of our housing and credit markets and is at the heart of what’s wrong with Wall Street today.”

The lawsuit alleges the rating agencies gave many of these exotic MBS investments the highest investment-grade credit rating – “AAA“– which is characteristically reserved for the safest corporate bonds that are considered to have a very low risk of default.

“Contrary to the representations of the rating agencies, these mortgage-backed securities were, in fact, high-risk investments that lost tremendous value as the housing market collapsed and mortgage foreclosures accelerated,” said Cordray, a former state and county treasurer.

Based on preliminary estimates, Cordray says improper ratings resulted in losses for the Ohio employee investment funds in excess of $457 million.

According to Cordray, public statements and testimony by agency executives and analysts indicate that they knew their MBS ratings were wrong. Cordray cited one rating agency analyst as saying the MBS market was “little more than a house of cards,” and he quoted a second agency analyst as saying, “We rate every deal. It could be structured by cows and we would rate it.”

Indeed, Moody’s CEO Raymond McDaniel testified on Capitol Hill last year that his agency, along with the other two central players, had lowered their standards in order to win market share. “What happened in ’04 and ’05 … is that our competition, Fitch and S&P, went nuts. Everything was investment-grade. It really didn’t matter,” McDaniel wrote in an internal memo that was widely publicized in October of 2008, adding that Moody’s also “[drank] the Kool-Aid.”

According to multiple media reports, spokespersons for the ratings agencies claim Cordray is looking for a scapegoat for investors’ losses and that his allegations have no legal merit.

Attorney General Cordray is dead-set on holding Wall Street accountable for the nation’s housing downturn and ensuing economic tailspin – a fight which now includes eight major lawsuits, which have recovered more than $2 billion to date.

Recent settlements include $284.5 million from secondary defendants in a case involving AIG and $475 million from Merrill Lynch. Cordray is currently representing Ohio investment funds in several major securities cases, including class action securities lawsuits against AIG, Bank of America, Fannie Mae, and Freddie Mac.