In the government's eyes, Standard & Poor's ratings stopped making sense: Jonathan Stempel
Barely two weeks after the big subprime lender New Century Financial Corp went bankrupt, a top Standard & Poor's (S&P) executive assured Congress that her employer could be counted on to sound the alarm for the next credit disaster.
S&P ratings are "grounded in the cornerstone principles of independence, transparency, credibility and quality," resulting in a "long-standing track record of analytical excellence and objective commentary," Susan Barnes, managing director in charge of US residential mortgage-backed securities (RMBS), testified.
But as Barnes spoke that April 17, 2007, before a Senate subcommittee, those principles were burning down around her, the US government now argues in a $5 billion civil lawsuit accusing S&P of defrauding investors through inflated ratings.
The 119-page complaint sets out a litany of internal forebodings and warnings that investigators believe show the largest US credit rating agency falsely represented that its ratings prior to the recent financial crisis were objective, and untainted by conflicts of interest.
While the complaint largely refers to S&P officials in the form of "Senior Analyst A", Reuters was able to identify many of them by referencing other public documents.
S&P, a unit of McGraw-Hill Cos, said it will vigorously defend against the lawsuit filed late Monday in Los Angeles federal court, and that it was "simply not true" that it deliberately kept ratings artificially high.
The government did not sue S&P's main rivals, Moody's Corp's Moody's Investors Service and Fimalac SA's Fitch Ratings.
SPINNING TOP
According to the complaint, seeds for the fraud were planted in 2004 when S&P, mindful
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