The U.S. Justice Department plans to file civil fraud charges against the nation's largest credit-ratings agency, Standard & Poor’s (S&P), accusing the firm of inflating the ratings of mortgage investments and setting them up for a crash when the financial crisis struck.
The suit, expected to be filed as early as this week, would be the first significant U.S. government action against the ratings industry, which during the boom years reaped record profits as it bestowed gilt-edged ratings on complex bundles of home loans that quickly went sour. The high ratings made many investments appear safer than they actually were, and are now seen as having contributed to a crisis that brought the financial system and the broader economy to its knees.
More than a dozen state prosecutors are expected to join the federal suit, and the New York attorney general is preparing a separate action.
Settlement talks between S&P and the Justice Department broke down in the last two weeks after prosecutors sought a penalty in excess of $1 billion and insisted that the company admit wrongdoing, several people with knowledge of the talks said. That amount would wipe out the profits of S&P’s parent, the McGraw-Hill Cos., for an entire year. In one session with the government, S&P had proposed a settlement of around $100 million.
S&P, which was first contacted by federal enforcement officials three years ago, said Monday that it had acted in good faith when it issued the ratings. — New York Times News Service
Keywords: Standard & Poor’s, S&P ratings, inflated ratings, U.S. laws, U.S. Justice Department, mortgage ratings
This is not surprising. What is surprising is that it has come 5 years
after the meltdown.
Stiglitz mentioned this in his excellent book - "Free Fall". Yet, when
these rating agencies sneeze, our "reformist" government goes into a
tizzy.
The hurry to open up FDI in Multi-brand retail was caused by a threat of
rating agencies to downgrade India.
Question: Was some of the lobbying expenses spent on rating agencies?
It is not only the failure of the S&P rating agency, but also a failure of the US regulators that led to investment losses to many all over the world.
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