Monday, February 11, 2013

Feds Tag Major Securities Rating Service For Disregarding Its Own Standards When Giving High Grades To Crappy Mortgage Bonds That Eventually Imploded, Leaving Unwitting Investors Holding The Bag

The Wall Street Journal reports:

  • The Justice Department sued Standard & Poor's Ratings Services late Monday, alleging the firm ignored its own standards to rate mortgage bonds that imploded in the financial crisis and cost investors billions.

    The civil charges by U.S. Attorney General Eric Holder against the New York company, one of the bond-rating industry's three giants, are the first federal enforcement action against a credit-rating firm over the crisis. Several state attorneys general are likely to join.

    S&P said in a statement earlier Monday that the government suit would be "entirely without factual or legal merit," and denied wrongdoing.

    After The Wall Street Journal reported Monday afternoon that the government intended to launch the civil case, S&P confirmed the expected lawsuit and said the rating firm was being punished unfairly by the U.S. government for "failing to predict" the housing meltdown or financial crisis.

    The two sides have discussed a possible settlement for about four months, according to people close to the negotiations, but S&P balked over concerns that a deal could sink the company.

    The government was seeking penalties of more than $1 billion, another person close to the talks said, which would be the biggest sanction imposed on a firm related for its actions in the crisis.

    S&P officials also were rattled that the government was pushing the company to admit wrongdoing that could leave it more vulnerable to pending or new lawsuits by investors.
For more, see U.S. Sues S&P Over Ratings (Justice Department Says Endorsements of Risky Mortgage Bonds Fueled Crisis).

For the lawsuit, see U.S. v. McGraw-Hill Companies, Inc., et al.

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