US sues S&P over gold rating for subprime

The US government is taking ratings agency Standard & Poor’s to court over the toxic subprime sludge given gold-plated ratings in the run-up to the financial crisis.

The Department for Justice today launched a civil claim against S&P and parent McGraw-Hill over its rating of mortgage bonds and is seeking a huge fine.

The move marks the first enforcement action against a credit rating agency over alleged illegal behaviour tied to the financial crisis and could trigger a wave of lawsuits from other investors.

A civil claim has a lower burden of proof, increasing the chances of a result. The lawsuit said: “Considerations regarding fees, market share, profits, and relationships with issuers improperly influenced S&P’s rating criteria and models.”  

Investment banks paid S&P, as well as other agencies Moody’s and Fitch, millions of dollars for rating an alphabet soup of complex financial instruments left nearly worthless by the crash.

Talks over a $1 billion (£634 million) settlement collapsed last week, according to reports.

S&P said the lawsuit was “entirely without factual or legal merit”.

“The DoJ would be wrong in contending that S&P ratings were motivated by commercial considerations and not issued in good faith.”