A California judge has tentatively ruled that the state could hold the major financial research company accountable for pinning triple-A ratings on state-bought mortgage-backed securities that went bust in the crash of 2008.

Bloomberg reports:

California Superior Court Judge Curtis Karnow in San Francisco said yesterday he was inclined to deny the company’s request to throw out the state’s claims of deceptive conduct from a lawsuit alleging S&P violated false-advertising and business practices laws.

The state accuses S&P of using “magic numbers” to inflate ratings of mortgage-backed securities bought by the California Public Employees’ Retirement System and the state’s teacher pension fund. The funds lost more than $1 billion on the investments, according to the state.

Standard & Poor’s is also being sued for fraud by the U.S. Justice Department in a separate case in federal court in Santa Ana, Calif. “The U.S. accuses the company of lying about its ratings and being free of conflicts of interest,” Bloomberg writes. “The firm has said it provided the same credit ratings as Moody’s Corp. and Fitch Ratings on residential mortgage-backed security and collateralized debt obligations before the credit crisis.”

The company has denied wrongdoing in both lawsuits, and the judge did not say when he would issue a final ruling.

Yves Smith of Naked Capitalism called the development “potentially huge.”

“Heretofore, no one has been able to sue the ratings agencies (astonishingly, they’ve been able to claim First Amendment protection, that their work is mere journalistic opinion),” she wrote on her site on Sunday. “This angle might work.”

— Posted by Alexander Reed Kelly.