Business, Economics and Jobs

US Department of Justice goes after S&P over mortgage ratings in historic multi-billion-dollar case

The US Justice Department filed suit against Standard & Poor's (S&P) late Monday over its alleged role in the 2007-2009 global economic downturn, marking the United State's first federal case against a major credit rating agency, reported the Financial Times.

Seven state attorneys-general joined the DOJ's 128-page civil lawsuit against the McGraw-Hill unit, said FT, which US Attorney General Eric Holder announced Tuesday, said Reuters. The US is seeking over $5 billion in the case. 

Authorities are taking the agency to task over the top-notch rating it gave securities, or CDOs, in the leadup to the economic meltdown. The DOJ suit claimed the agency's "desire for increased revenue...and its resulting desire to maintain and enhance its relationships with issuers that drove it ratings business, improperly influenced S&P to downplay and disregard the true extent of the credit risks," according to FT

S&P hit back Tuesday by vowing to "vigorously defend" its actions in court, adding, "20/20 hindsight is no basis to take legal action against the good-faith opinions of professionals," according to an e-mail statement provided to Reuters.

Private investors have also accused S&P other major agencies of providing securities with high ratings that they say directly contributed to the misvaluing of thousands of subprime and other mortgage securities, which in turn lead to the 2008 US housing crisis that precipitated a global financial downturn, according to MSNBC. They claim S&P and other agencies upped the ratings in an attempt to boost profit, misleading investors about the financial climate. 

S&P shares fell Monday with news of the impending US suit, said FT