The California Public Employees' Retirement System dropped Fitch Ratings from a massive negligent misrepresentation lawsuit this week. CalPERS originally filed the case against the top ratings agencies, accusing them of misrepresenting ratings on three structured investment vehicles that held billions of dollars of assets, mainly subprime mortgage loans. The huge pension system dropped Fitch after the parties reached an agreement. "Under the terms of the settlement, Fitch will make no payment to CalPERS," a spokesman for Fitch Ratings said. The remaining defendants include Moody's Corp.(MCO), parent company of Moody's Investors Service and McGraw Hill Cos. (MHP), parent of Standard & Poor's. When the funds collapsed three years ago, CalPERS claimed the SIVs defaulted on payment obligations to the state pension fund, resulting in upward of $1 billion in investment losses. "The credit ratings on the three SIVs ultimately proved to be wildly inaccurate and unreasonably high," the plaintiffs alleged in the original complaint. "The rating agencies' methods used to rate the SIVs and their underlying assets were seriously flawed in conception and incompetently applied." The settlement between Fitch and CalPERS does not impact the other defendants, CalPERS said. "Dismissal of the two Fitch defendants in the CalPERS complaint will streamline the litigation against two other credit rating agencies – Moody's and Standard & Poor's," CalPERS said in a statement. "The dismissal will not impact the case. CalPERS can still fully recover its damages if it prevails against Moody's or S&P, which will not be able to avoid liability through the Fitch dismissals." Structured investment vehicles were operating financial institutions that issued short-term debt, financed by long-term securities. When the market for short-term debt dried up during the credit crisis, SIVs also evaporated, leaving investors in the lurch. Write to: Kerri Panchuk.