Rating agencies under cloud as US sues S&P
06 Feb 2013
Rating agency Standard & Poor's has been accused by the US justice department of defrauding investors in mortgage-related securities of at least $5 billion by issuing inflated ratings to win hundreds of millions of dollars in fees.
The US authorities also brought McGraw-Hill, the parent of S&P, into a lawsuit that was first revealed on Monday.
The news will no doubt be music to the ears of Indian planners including finance minister P Chidambaram, who have consistently hinted that international credit rating agencies like S&P are well – not very credible, and their threats to downgrade India's rating are misplaced.
The 128-page civil against a credit rating agency marks a first in US legal history.
Senior US Federal Reserve officials including its chairman Ben S Bernanke warned in August 2007 that investor confidence in credit rating companies was fading, risking greater instability in financial markets.
Announcing the charges, at a news conference on Monday, US attorney-general Eric Holder said, ''Put simply, this alleged conduct is egregious – and it goes to the very heart of the recent financial crisis.''
The DoJ also alleges S&P falsely represented to investors, including Western Federal Corporate Credit Union, Citibank and Bank of America, that its ratings were objective when instead they were influenced by a desire to win fees and market share.
