Analysts at Standard & Poor’s, the ratings firm accused by the U.S. of misleading investors about the risks of mortgage bonds that helped ignite the financial crisis, were arguing the merits of their views on debt opinions, not committing fraud, President Doug Peterson said.
'Our culture has always been characterized by vigorous debate and robust analysis', Peterson said last week in a video message that the world’s largest ratings firm sent to clients. 'There may have been differing opinions within S&P and some were strongly held but that is not evidence of fraud'.
Bloomberg reports that the U.S. Justice Department sued S&P and its parent, New York-based McGraw-Hill, in federal court in Los Angeles on February 4th, alleging analysts inflated ratings on mortgage securities and collateralized debt obligations leading up to the seizure in credit markets to win business from Wall Street banks.
The civil lawsuit seeks about $5bn in penalties, equivalent to more than five years of McGraw-Hill profit. S&P said on February 5th the lawsuit is without merit.
S&P rated more than $2.8 trillion of residential mortgage-backed securities and about $1.2 trillion of CDOs from September 2004 through October 2007, according to the Justice Department complaint. When the U.S. housing boom collapsed, the world’s largest banks reported $2.1 trillion in losses and writedowns, triggering the worst financial crisis since the Great Depression and costing 8.8 million people their jobs.
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