The Justice Department late Monday hit Standard & Poor’s with civil fraud charges, alleging the nation’s largest credit rating firm gave overly rosy appraisals to securities that led to the national financial meltdown.
Earlier Monday, S&P issued a statement saying it expected the lawsuit and denying any culpability.
Filed in Los Angeles federal court, the lawsuit focuses on the firm’s ratings of some mortgage-backed bonds in 2007, the year before defaults of many of those financial instruments caused the housing market crash and crippled the national economy.
“S&P’s desire for increased revenue and market share … led S&P to downplay and disregard the true extent of the credit risks … in order to favor the interests of large investment banks and others… who selected S&P to provide credit ratings,” the government charges in the lawsuit filed against S&P’s parent, McGraw-Hill Companies.
S&P said earlier that such a lawsuit — marking a significant expansion of government efforts to hold financial firms accountable for the crisis — ” would be entirely without factual or legal merit.”
“It would disregard the central facts that S&P reviewed the same subprime mortgage data as the rest of the market — including U.S. government officials who in 2007 publicly stated that problems in the subprime (mortgage) market appeared to be contained — and that every (mortgage-backed bond that the Department of Justice) has cited to us also independently received the same rating from another rating agency,” the company said.