The US plans to sue the S&P over ratings of mortgage bonds before the recent financial crisis.
The Standard & Poor expects to be the target of a civil lawsuit by the Department of Justice. The lawsuit, which will be against the McGraw-Hill Cos unit, will focus on the department’s ratings in 2007 of several collateralized debt obligations (CDO).
Yahoo! News reports that the lawsuit would be the first actin taken against a credit rating agency as a result of alleged illegal behavior tied to the financial crisis.
A statement by S&P read, in part:
“A DOJ lawsuit would be entirely without factual or legal merit. The DOJ would be wrong in contending that S&P ratings were motivated by commercial considerations and not issued in good faith.”
CNN notes that the Standard & Poor’s statement added they rely on the same information as US government officials.
The firm also “deeply regrets” that its ratings “failed to fully anticipate the rapidly deteriorating conditions in the US mortgage market.”
Several mortgage-backed securities received AAA ratings in the years preceding the 2008 meltdown. But those same securities failed when the housing market collapsed.
Critics of the major ratings agencies say that the firms are paid by both banks and other issues of securities, instead of investors. Therefore, they experienced a conflict of interest in giving their seals of approval to investments that weren’t actually good.
US Senator Carl Levin stated in 2010, “Credit rating agencies allowed Wall Street to impact their analysis, their independence and their reputation for reliability.”
So far, there is no response from the justice department over the potential S&P lawsuit.