WASHINGTON, February 5 (RIA Novosti) – The US government has filed a $5 billion lawsuit against ratings agency Standard & Poor’s (S&P) and parent company McGraw-Hill for allegedly defrauding investors by inflating its ratings for risky mortgage investments that helped lead to the 2008 financial crisis.
“Put simply, this alleged conduct is egregious—and it goes to the very heart of the recent financial crisis,” US Attorney General Eric Holder told a news conference Tuesday. “Today’s action is an important step forward in our ongoing efforts to investigate and punish the conduct that is believed to have contributed to the worst economic crisis in recent history.”
The civil suit is the US government’s first major legal action against a credit rating agency over alleged abuses tied to the worst financial crisis in the United States since the Great Depression.
Attorneys general from six states and the District of Columbia joined the Justice Department in the civil suit, and additional states are expected to join as well.
The lawsuit alleges that S&P misled investors, many of them federally insured financial institutions, causing them to lose billions of dollars on investments related to mortgage-backed securities, and that its mortgage-bond ratings were impacted by “significant conflicts of interest.”
The suit accuses S&P of inflating the ratings of mortgage-backed securities in order to earn more business from the financial institutions that issued the investments.
On its website, S&P called the lawsuit “without legal merit” and said “claims that we deliberately kept ratings high when we knew they should be lower are simply not true.”