Justice Filing Suit Against S&P Over 2008 Meltdown
Feds will accuse firm of fraudulently rating mortgage bonds
By Neal Colgrass, Newser Staff
Posted Feb 4, 2013 2:49 PM CST
In this June 11, 2012, file photo, Attorney General Eric Holder speaks in Washington.    (AP Photo/Jacquelyn Martin)

(Newser) – The Justice Department and state prosecutors are filing a lawsuit against the Standard & Poor's Ratings Service for its apparent role in the 2008 financial meltdown, the New York Times reports. The civil suit will accuse S&P of rating mortgage bonds too highly before their value fell off a cliff, taking much of the economy with them. Justice had been seeking a settlement with S&P, but that fell apart after officials sought a 10-figure amount—at least $1 billion—which is more than the annual profit of S&P's parent company, McGraw-Hill.

By filing a civil rather than criminal suit, the burden of proof will be less and odds of a prosecution higher. Why the feds are targeting S&P rather than rivals like Moody's Corp, Fitch Ratings, or Hearst Corp isn't clear, the Wall Street Journal reports—and S&P clearly isn't happy about it. "A DOJ lawsuit would be entirely without factual or legal merit," said the firm. The agency also said it had lowered ratings on many mortgage-backed investments before the financial crisis. (None of this will likely satisfy activist Michael Moore, who wants the head of S&P arrested.)

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Showing 3 of 22 comments
Feb 5, 2013 10:52 AM CST
Standard & Poor's represented junk as AAA. They need to see criminal prosecution, and execs should go to jail, but I can only dream. Clinton was not alone. This was really kicked off with the removal of Glass-Steagall, which was a package deal between Clinton, Phil Graham, and Bob Rubin. We need to tell big banks that if they want to trade, we won't provide FDIC. Be a bank, or be a broker. Not both.
Feb 5, 2013 10:12 AM CST
Well, this could get interesting! You have the government, who in exchange for their insistences on "fair" distribution of sub-prime mortgages, would underwrite them when sold to Fannie Mae / Freddie Mac. So ... the banks leverage these mortgages as AAA as they do all securities, and loan out new money that goes bad, and VOELLA, the mortgages aren't REALLY AAA .... the bastards! SO ... now, whose fault will these defaults be? The US Gov? The Banks that leveraged the AAA mortgages? No .... let's go after the RATING AGENCIES, who rated the US Gov backed securities as AAA, (as they do ALL government obligations ... well until last year). WTH ... would the DOJ sue them for rating US Treasuries AAA? Same backing. Oh how fun this group of whizbang politico's are!!!
Feb 5, 2013 7:15 AM CST
If they put all the crooks in jail, there will be no one in Washington, including the head of DOJ. So nothing is going to happen, all a smoke screen.