The Connecticut Attorney General filed suit Wednesday against two credit rating agencies for their role in the subprime mortgage crisis.

The suit alleges that Moody’s Investor Services (MCO) and Standard & Poor's, which rate the credit worthiness of investments and issuers, tainted the ratings given to mortgage-backed securities backed by subprime home loans. The ratings, Blumenthal said, catered to the demands of investment banks in order to increase revenue.

As a result, the attorney general said, many risky structured finance securities received the agencies' highest ratings. 

“These credit rating agencies gave the best ratings money could buy -- catering to their powerful investment bank clients, rather than objectively rating risky bonds,” Blumenthal said in a release. “Countless investors and others -- including individuals, banks, mutual funds, insurance companies, hedge funds and pension funds -- were misled into believing that these credit ratings were independent and objective, and lost money on investments they might have avoided if told the truth.

S&P is a unit of McGraw-Hill (MHP). 

Blumenthal announced the suit at a press conference Wednesday. The attorney general has already declared his candidacy to replace outgoing Connecticut Senator Christopher Dodd, who will not seek re-election.

A spokesman for McGraw Hill, said Blumenthal’s claim is without merit.

“We believe that the claim has no legal or factual merit and we intend to vigorously defend ourselves against it,” said spokesman Steven Weiss.

Moody's also believes the suit has no merit, said spokesman Michael Adler.

This is Blumenthal's second salvo against the rating agencies.  In 2008, he filed a separate suit alleging that the ratings agencies gave states and municipalities lower ratings than corporate issuers with a similar risk of default.  That case is still pending.