S&P Sued By US Due To Mortgage Ratings

S&P Sued By US Due To Mortgage Ratings

Standard & Poor’s Ratings Services or the S&P was sued by US authorities recently in connection to the ratings assigned to mortgage-backed bonds.

The US Justice Department filed the civil charges in an LA federal court on Monday, which is the first time the credit ratings agency is being pursued by US authorities in connection to the housing crisis.

Reports of the charges against the S&P followed continuous pressure on authorities to go after the ones that caused the financial crisis in 2008. A number of civil actions were made on banks by authorities have resulted to settlements without any acknowledgement of any wrongdoings. No criminal or civil charges were filed against senior executives of the major institutions.

Major rating companies have been criticized for their roles that led to the crisis. Triple-A ratings were given to a number of investments that were later found to be of no value.

The Financial Inquiry Commission found out that the ratings agencies did not make accurate assessments. They also looked more to attaining profits rather than following their own standards.

The action against the S&P may allow the US Justice Department to concentrate on other mortgage-backed securities that were created in 2007. Prosecutors will use internal emails of S&P employees to build their case. A settlement worth billions of dollars was being worked out, but it did not materialize.

The S&P indicated that all the securities involved were given similar ratings by other ratings agencies. The firm added that authorities erred in concluding that monetary considerations motivated the firm to give out the ratings.

Ratings agencies have been sued by private investors and some states due to the supposed misleading ratings that resulted to losses. A judge in Australia ruled against the ratings firm last November due to supposed deceptive and misleading conduct when it gave a mortgage-backed security a triple-A rating. The rating firm is set to make an appeal.

Ratings agencies have used the freedom of speech right as their defense against lawsuits in the US. The recent lawsuit has drawn questions from experts who indicated that actual changes in the structure may be substituted with financial penalties. The lawsuit against S&P that sought monetary penalties is not be the answer to the problem since it may be necessary to modify the entire system.

Posted by James Fried on Tuesday February 05 2013, 9:16 AM EST. Ref: The Globe And Mail. Link. All trademarks acknowledged. Filed under Featured News, Finance. Comments and Trackbacks closed. Follow responses: RSS 2.0