|US slaps S&P with US$5b lawsuit
The US government is seeking US$5 billion in its civil lawsuit against Standard & Poor’s, accusing the ratings service of defrauding investors, in one of the most ambitious cases yet from the Justice Department over conduct tied to the financial crisis.
The United States said S&P inflated ratings and understated risks associated with mortgage securities, driven by a desire to gain more business from the investment banks that issued those securities. S&P also falsely claimed its ratings were objective, the lawsuit said.
"Put simply, this alleged conduct is egregious — and it goes to the very heart of the recent financial crisis,” said Attorney General Eric Holder at a news conference in Washington announcing the charges.
The 119-page lawsuit, filed late on Monday in federal court in Los Angeles, is the first from the government against a ratings agency, a sector that has generally shielded itself from liability by citing First Amendment protection.
Sixteen states and the District of Columbia are also suing S&P, a unit of the McGraw-Hill Companies Inc. McGraw-Hill shares were down 5.3 percent at US$47.61 yesterday, extending Monday’s declines.
No individuals were charged in the DOJ’s lawsuit, and it was not immediately clear why the government focused on S&P instead of rivals Moody’s Corp or Fimalac SA’s Fitch Ratings, which were also major raters of such securities.
S&P issued a statement yesterday saying the lawsuit is meritless and that it will vigorously defend itself. It said the government "cherry picked" emails to misconstrue analyst activity.