The U.S. government is seeking $5 billion in penalties from Standard & Poor's, saying the credit rating agency knowingly inflated its ratings on risky mortgage investments that helped trigger the 2008 financial crisis.
S&P gave high marks to mortgage-backed securities because it wanted to earn more business from the banks that issued the investments, the Justice Department alleged in civil charges filed late Monday in federal court in Los Angeles.
The case is the government's first major action against one of the credit rating agencies that stamped their approval on Wall Street's soon-to-implode mortgage bundles. It marks a milestone for the Justice Department, which has been criticized for failing to act aggressively against companies that contributed to the crisis.
S&P, a unit of Manhattan-based McGraw-Hill Cos., called the lawsuit "meritless." "Hindsight is no basis to take legal action against the good-faith opinions of professionals," the company said in a statement. "Claims that we deliberately kept ratings high when we knew they should be lower are simply not true."
The suit claims S&P knew home prices were falling and borrowers were having trouble repaying loans, yet failed to reflect those trends in the safe ratings it gave to complex real-estate investments. At least one S&P executive who had raised concerns was ignored.
S&P executives expressed concern that lowering the ratings on some investments would anger the clients selling these investments and drive new business to S&P's rivals, the government claimed. -- AP