Standard & Poor's decries government suit

NEW YORK The U.S. government is expected to file civil charges against Standard & Poor's Ratings Services, alleging that it fraudulently gave high ratings to mortgage debt that later plunged in value and helped fuel the 2008 financial crisis.

The charges would mark the first enforcement action the government has taken against a major rating agency involving the financial crisis.

S&P said Monday that the Justice Department had informed it that it intends to file a civil lawsuit focusing on S&P's ratings of mortgage debt in 2007. The action does not involve any criminal allegations.

S&P denies any wrongdoing and says any lawsuit would be without merit.

• Egan-Jones banned from rating government

A lawsuit would "disregard" the fact that S&P reviewed the same data on risky mortgages as the rest of the market and U.S. government officials, who publicly said in 2007 that the problems in the subprime mortgage market appeared to be limited, the company said in a statement.

In the statement, S&P said it "deeply regrets" that its ratings on some securities "failed to fully anticipate the rapidly deteriorating conditions in the U.S. mortgage market during that tumultuous time."

Justice Department spokeswoman Nanda Chitre declined to comment on the matter.

S&P is a unit of New York-based McGraw-Hill (MHP). The company's stock tumbled 13 percent in heavy trading Monday amid a broader market decline.

S&P and the other two major agencies, Moody's Investors Service and Fitch Ratings, have been blamed for helping fuel the crisis by assigning AAA ratings to trillions of dollars in risky securities backed by subprime mortgages. The securities later collapsed in value once the housing market bubble burst and home-loan delinquencies soared. Major U.S. banks absorbed tens of billions of dollars in losses.

The rating agencies are crucial arbiters of the creditworthiness of securities traded around the world. The grades they assign can affect a company's ability to raise or borrow money and how much investors will pay for securities it issues.

The securities in the anticipated federal lawsuit are collateralized debt offerings. CDOs are investment vehicles that contain many underlying mortgage loans.

A CDO generally gains in value if borrowers repay. But a wave of defaults can cause them to tumble in value. Soured CDOs contributed to, and intensified, the financial crisis.

Critics have long argued that rating agencies have an inherent conflict of interest: They're paid by the same companies whose products and credit they rate. The agencies have been accused of issuing unduly high ratings before the crisis because of pressure from banks they desired as clients.

The ratings agency denies any wrongdoing and says any lawsuit would be without factual or legal merit.

There was no immediate comment from the Justice Department.

State prosecutors could join the government's suit. Sources familiar with the situation said New York Attorney General Eric Schneiderman, who also has been investigating how mortgage-backed securities were rated before the housing crash, could announce related legal action as early as this week.

[123-cbsnews]

These criminals rated 0% down payment loans as favorable, while I saved 154,000 dollars down payment for twenty years, and then lost every penny after S&P rated it, Ernest & Young audited it, AIG insured it, and GE, Wachovia, Citibank, Countrywide, bought into it, Foxtons, Century 21 sold it with help from every law firm in the country ignoring rapidly increasing prices well beyond what was within reason.

[WWIIWWII]

The sad thing is: The WALL STREET CRIMINALS WHO TOOK THE COUNTRY DOWN HAVE NOT GONE TO JAIL.

[Barry-been-inhalin]

Obama is not in jail either.

[RudiGarmisch]

Micahstone, sounds like you have skin in the game. Must be an employee of one of the rating agencies - n'est-ce pas!

[endrepubs]

All the ratings agencies are bought and paid for.

[hypnotoad72]

Only 129 points?

That's nothing in our new normal...

Given wall street wanted government to give it subsidy after tax break after subsidy, give it nearly 0% loans (just so they see a higher "profit" in return for the 6, 10, 20% or higher loans to us, we saw nothing out of those lower rates they got, especially students)...

Given all that, on top of TARP (of which how much has paid back is still being disputed), and QE1, Aq3, QE3, etc...

And all the jobs offshored and US workers who trained their own replacements for free or else not get UI benefits...

They made this problem, and made it worse. NOW they whine about the debt.

And yet they call the working class "overpaid", "parasites", etc, hoping nobody looks up the number of charts, articles, etc, covering more work done for less pay, wage stagnation, the aforementioned percentage rate issue, and everything else!

Forgive me - S&P can cry all it wants. It was a far bigger factor in cultivating today's problems than anyone out here in the big peanut gallery.

[hypnotoad72]

Oops, QE2 (not Aq3)... meh. It's all the same - 'supply side bailout'

[tsigili]

The government gets even, for the downgrade.

[hypnotoad72]

Government is bought and paid for, by the corporate interests that made the problem.

My one-liner trumps your one-liner.