US sues Standard & Poor's for $5 bn over pre-crisis mortgage ratings
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 have filed or will file separate, similar civil fraud lawsuits against S&P. Connecticut Attorney General George Jepsen said that by the end of Tuesday, 16 states and D.C. will have sued S&P.
According to the lawsuit, S&P didn't issue a mass downgrade of subprime-backed securities until mid-2007, even though it
