The US government has decisively accused Standard and Poor’s of intentionally defrauding investors in mortgage-backed securities through inflated ratings. The government has underlined that it demands as much as $5 billion in the form of a civil lawsuit against the penalties.
S&P to Pay For Lawsuit
Standard and Poor’s, the US financial services company, was caught in a civil probe conducted by the government because the former was accused of defrauding investors. The Department of Justice held the company responsible for inflated rates and filed a civil lawsuit worth as much as $5 billion. The lawsuit is 120 pages long and the first one which is imposed against a financial rating agency. The Department of Justice claims that Standard and Poor’s knowingly increased the rate of interest on risky mortgage securities. Moreover, the company falsely claimed its earnings to be objective to investors such as, Citibank and Bank of America, in a bid to earn more dollars in the form of fees. "Put simply, this alleged conduct is egregious - and it goes to the very heart of the recent financial crisis," underlined Eric Holder, 82nd Attorney General of the United States.
The 2008 global financial crisis saw colossal losses as risky investments were mortgaged against securities and sold to investors with high credit rates. The issue came into existence when borrowers stopped making payments on the mortgaged bonds and the derivatives decreased, pushing the economy into the biggest financial crisis ever seen. The civil charges imposed on Standard and Poor’s are noted as the administration’s most aggressive action till date. The company, however, does not intend to pay the lawsuit charges fearing that it will urge other investors to file a suit against it.
According to a statement released by the Department of Justice, early in 2007 Standard and Poor’s assisted some of the biggest US banks to convert securities into Collateralized debt obligations and sell them to investors. Some senior officials at the Department of Justice are certain that S&P helped the banks in the illegal scandal and claim to possess evidence for the same. When estimated, the CDO’s turned down to bring losses worth $5 billion. E-mails and text messages of the company are expected to give the prospectors an insight into the real matter and prove to be evidence against the company in court proceedings. Rumors have been circulating that S&P analysts joked about the company’s downfall and created a mock song inspired by “Burning down the house” rewritten as “Bringing down the house”.
However, Standard and Poor’s shrugged off the allegations by saying that: “Claims that we deliberately kept ratings high when we knew they should be lower, are simply not true.” Standard and Poor’s claims to reflect their best judgments of accurate ratings regarding mortgaged securities and CDO’s. The US government is expected to provide evidence which proves that Standard and Poor’s deliberately re-adjusted the credit rates and intended to defraud investors. The company is certain that the court proceedings will reveal that Standard and Poor’s did not intend to misguide investors with wrong credit rates.