RATINGS giant Standard & Poor’s yesterday said it faced a civil lawsuit from the US Department of Justice (DOJ) over grades it gave prior to the credit crunch.
Shares in McGraw-Hill, S&P’s parent company, collapsed 13.8 per cent to hit $50.30, their worst fall since the October 1987 crash. Shares in rival Moody’s also fell 11 per cent yesterday despite no sign it will be named in the suit.
The DOJ, which may be joined by several state prosecutors, is expected to hit S&P with charges relating to the assessments it gave mortgage-backed security financial instruments. This civil lawsuit comes after talks between S&P and prosecutors broke down, reportedly over the size of the payoff.
S&P has maintained that ratings are effectively opinions, and are hence protected under the First Amendment to the US constitution, which guarantees free expression.
“A DOJ lawsuit would be entirely without factual or legal merit,” S&P claimed in a statement. “The DOJ would be wrong in contending that S&P ratings were motivated by commercial considerations and not issued in good faith.”
“It would disregard the central facts that S&P reviewed the same subprime mortgage data as the rest of the market – including US officials who in 2007 publicly stated that problems in the subprime market appeared to be contained – and that every security that the DOJ has cited to us also independently received the same rating from another agency.”
The DOJ was unavailable for comment.