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US files lawsuit against Wall Street ratings agency

Posted by | February 6, 2013 .

Washington (dpa) – The US Justice Department filed a lawsuit Tuesday against Wall Street ratings agency Standard & Poor’s alleging fraud in its public evaluations of risk on mortgage-backed securities leading up to the 2008 financial crisis.

The civil case, filed in federal court in California, alleges that S&P inflated ratings on bonds that bundled high-risk residential mortgage loans from 2004-07.
The Justice Department accused S&P of misrepresenting its ratings as uninfluenced by financial relationships with the investment banks issuing mortgage-backed securities.

S&P issued a statement Monday, in anticipation of the court filing, calling the allegations ”without legal merit and unjust.”

Ratings agencies were hired by banks to evaluate the risk of default on their mortgage-backed bonds. Years of strong returns made such securities popular with investors, especially banks around the world, destabilizing global credit markets when the US real estate crash left bondholders with devalued assets.

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