RETALIATION?

US suing Standard and Poor's

McClatchy NewspapersFebruary 5, 2013 

— Trying to get ahead of a potentially explosive story, credit rating agency Standard & Poor’s announced Monday that the Justice Department had informed the company that it’s the subject of a civil lawsuit for the AAA ratings it gave to complex bonds in 2007 that later turned out to be junk.

In a highly unusual statement, S&P, a subsidiary of publishing giant The McGraw-Hill Companies Inc., said that the Justice Department would sue the company for failing to predict the full magnitude of the U.S. housing downturn, something Wall Street banks and federal regulators all missed as well.

Given that S&P issued a historic downgrade of U.S. creditworthiness in August 2011 and has threatened to take that rating down a further notch, the pending suit is raising questions of whether it actually amounts to retaliation.

At issue are financial instruments called collateralized debt obligations, shorthanded as CDOs, which were sold to investors in 2007 and are comprised of mortgages and other consumer and business debt pooled together into a complex bond. Investors bought into differing levels of risk and thus got varying levels of financial return.

S&P said Monday that it’s being unfairly singled out.

“It would disregard the central facts that S&P reviewed the same subprime mortgage data as the rest of the market — including U.S. government officials who in 2007 publicly stated that problems in the subprime market appeared to be contained — and that every CDO that DOJ has cited to us also independently received the same rating from another rating agency,” the company said.

Justice Department spokeswoman Adora Andy declined comment.

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