Justice Files $5 Billion Suit Against S&P
February 5, 2013 by UPI - United Press International, Inc.
LOS ANGELES (UPI) — The U.S. Justice Department said it was seeking $5 billion in a fraud case filed against credit rating firm Standard & Poor’s for misleading ratings.
In a press conference on Tuesday, U.S. Attorney General Eric Holder said the ratings firm was operating under a conflict of interest as it passed judgment on subprime mortgage securities banks bundled together before the housing market bubble collapsed.
As banks were also paying for the service, S&P had motivation to give their products high ratings, a lawsuit filed by the federal government, 16 states and the District of Columbia contends.
The case filed in a federal court in Los Angeles says S&P promised its ratings “were objective, independent” and “uninfluenced by any conflict of interest.”
The Wall Street Journal reported the case includes an allegation of an S&P securities analyst sending an email that included a spoof of the Talking Heads song “Burning Down The House,” but with lyrics that joked about the collapsing housing market.
The email was allegedly sent March 19, 2007, and it went to several colleagues. It was followed up by a video sent out two days later that showed the analyst singing the song, while other co-workers laughed, the law suit says.
One of the analysts who received the song lyrics and passed them along to others later evaluated mortgage securities highly and the value of those securities later collapsed. One investor lost $90 million when the securities failed, the Journal reported.
S&P, which is owned by McGraw-Hill said it would “vigorously defend” itself in court. The claims filed against it were “unwarranted,” the company said.