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 involves civil rather than criminal charges. Criminal charges, which would carry the possibility of jail time, would be harder to prove.
Former Sen. Ted Kaufman, a Democrat who served on a panel that investigated the financial crisis, argued that actions by S&P and its employees amounted to criminal fraud.
"If you're selling something that you're saying has a certain level of safety, and you know it doesn't have that level of safety, that's fraud,'' Kaufman said.
He said big civil fines just end up hurting shareholders.
"The executives, the folks that did it, aren't going to pay anything,'' Kaufman said.
A lack of stronger evidence probably prevented Justice from seeking criminal charges against the company or its employees, said Jacob Frenkel, a lawyer formerly with the Securities and Exchange Commission.
Still, the complexity of the case could make it a model for future lawsuits against the other rating agencies, he said.
"I think the S&P case is likely to be a template for use against the other rating agencies as long as the government believes it has the evidence to make its case,'' Frenkel said.
Joining the Justice Department in the announcement were attorneys general from California, Connecticut, Delaware, the District of Columbia, Illinois, Iowa and Mississippi, who