U.S. Government Slams S&P With $5 Billion Fraud Lawsuit

Category: Markets / Finance / Feb 05, 2013 3:20PM EDT
The U.S. government on Tuesday (February 5) announced it is seeking $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. The 119-page lawsuit, filed late 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. 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. Holder said there is "no connection" between the S&P downgrade of the U.S. credit rating in 2011 and the investigation into S&P ratings of mortgage products. "The fact that there is no connection between the two, I mean they did what they did assessing what the credit worthiness was of this nation. we looked at the facts the law and the investigation that the great prosecutors and civil lawyers put together and made a determination that the filing of these lawsuits was appropriate, but they are not in any way connected." (Video Source: Reuters)