In the first ever federal motion against a credit-ratings firm, the Justice Department filed a lawsuit against Standard & Poor's Ratings Services for flouting its own rules to positively rate the mortgage investments in 2007, which lead to the financial crisis, reports the Wall Street Journal.
"Considerations regarding fees, market share, profit and relationships with issuers improperly influenced S&P's rating criteria and models," said the U.S. government. Wrong ratings by S&P in 2007, appeared to be safer for the investors and eventually contributed to the financial crash leading to losses of billions of dollars.
The New York attorney general will prepare for separate action and more than a dozen state prosecutors are expected to join the federal suit, according to The New York Times.
According to the WSJ, the government and S&P held discussions for the settlement for nearly four months but the firm backed off thinking that the deal will result in a loss for them. The government solicited fines of more than a billion dollars, the biggest sanction imposed on a firm for involvement in the financial crash.
However, S&P has termed the civil lawsuit to be "without legal merit and unjustified."
"A Department of Justice (DOJ) lawsuit would be entirely without factual or legal merit," a statement issued by the firm said. "It would disregard the central facts that S&P reviewed the same subprime mortgage data as the rest of the market - including U.S. Government officials who in 2007 publicly stated that problems in the subprime market appeared to be contained - and that every collateralized debt obligations (CDO) that DOJ has cited to us also independently received the same rating from another rating agency."
The statement also said that it will "vigorously" defend itself against "erroneous claims" concerning 2007 US CDO ratings.
Some lawmakers blamed the federal agency for failing to track and penalize firms and executives responsible for the crisis that dropped the country into recession, reports WSJ.
Neil Barofsky, the former inspector general for the Troubled Asset Relief Program, told WSJ that the Justice Department move against S&P looked like an effort to get "some measure of accountability" for the financial crisis, which was "something that's been really lacking across the board."
The shares of The McGraw-Hill Companies Inc, the parent company of S&P, slid 10.7 percent. This is the firm's biggest one-day percentage decline since the 1987 stock market crash, says a Reuters data.
In its statement S&P maintains that it has learned lessons from the financial crisis and has invested $400 million since 2007 to strengthen its ratings.
