U.S. alleges rating service willfully gave improperly positive credit ratings prior to economic collapse
The United States has permission to go ahead with its $5 billion civil lawsuit against the credit rating giant Standard & Poor’s, which is accused of defrauding investors during the financial crisis a few years ago.
U.S. District Judge David Carter, ruling from California Monday, said the government had sufficient arguments to allow the lawsuit to move forward.
Standard & Poor’s argued that the lawsuit is inappropriate because there is no proof of malfeasance at a time when almost everyone was unaware how hard the nation and world would be hit by the recession.
The U.S argument is that S&P issued ratings that were objectively and subjectively false with the intention of deceiving investors. S&P, a division of McGraw Hill Financial, Inc., argued that other credit ratings services made similar or identical ratings during that time without being accused of fraud.
“If the government's case appears to be a stretch, that is because it is," the agency's attorneys wrote in the dismissal request filing. “S&P's inability, together with the Federal Reserve, Treasury and other market participants, to predict the extent of the most catastrophic meltdown since the Great Depression reveals a lack of prescience but not fraud."
The federal case states that S&P was aware the housing market was in collapse and did not warn investors while inflating its rating on poorly funded mortgage investments. The case alleges S&P was rating investments higher than it should in order to attract more business from the issuing banks. Of particular interest was S&P’s ratings on sub-prime backed securities, which the U.S. government alleges should have been downgraded well before they were.
In April, S&P, Moody’s Investor Services and Morgan Stanley settled out of court with 14 private plaintiffs who alleged the ratings services misled them with inflated ratings on a pair of investment opportunities. S&P has also been sued by 18 U.S. states for violation of consumer protection laws relate to its analysis and ratings, the Wall Street Journal reported.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.