Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, February 5, 2013

DOJ Sues S&P Alleging Fraudulent Credit Ratings

As was predicted yesterday, the U.S. Department of Justice filed a complaint against Standard & Poor's Financial Services and its parent company McGraw-Hill Companies, alleging civil fraud in connection with S&P credit ratings issued from 2004-2007 for residential mortgaged backed securities (RMBS) and collateralized debt obligations (CDOs).  The suit is brought under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and seeks recovery of civil money penalties for mail and wire fraud affecting federally insured financial institutions and financial institution fraud.  The complaint alleges that S&P falsely represented that its credit ratings of RMBS and CDO tranches were "objective, independent, uninfluenced by any conflicts of interest that might comprominse S&P's analytic judgment, and reflected S&P's true current opinion regarding the credit risks the rated RMBS and CDO tranches posed to investors."  The government seeks an unspecified amount of damages, which, according to the Wall St. Journal, could be as high as $5 billion.  WSJ, U.S. May Seek $5 Billion From S&P .

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