US sues Standard & Poor's for $5 bn over pre-crisis mortgage ratings
recognized that home prices were sinking and that borrowers were having trouble repaying loans. Yet these facts weren't reflected in the safe ratings S&P gave to complex real-estate investments known as mortgage-backed securities and collateralized debt obligations, the lawsuit alleges.
At least one S&P executive who had raised concerns about the company's proposed methods for rating investments 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 claims.
Holder called the case "an important step forward in our ongoing efforts to investigate and punish the conduct that is believed to have contributed to the worst economic crisis in recent history.''
The $5 billion in penalties the government is demanding would amount to several times the annual revenue of McGraw-Hill's Standard & Poor's Ratings division. The ratings business generated $1.77 billion in revenue in 2011. McGraw-Hill's total revenue was $6.25 billion.
The fraudulent ratings contributed to the failure of a California credit union that required a multibillion dollar government bailout, the lawsuit said. It said Western Federal Corporate Credit Union bought the investments because of S&P's endorsement.
Western Federal was among five wholesale credit unions that regulators took over in 2009 and 2010. To wind them down, the National Credit Union Administration borrowed $11.2 billion from the Treasury. It's repaid about $6.1 billion. The agency said the costs will be paid by the credit union industry and Treasury will be fully repaid.
Critics complained that the government's action Tuesday
