S&P may face fraud charges over mortgage bond ratings

by Ryan Smith24 Jul 2014
Standard & Poor’s may be looking at a securities fraud lawsuit over ratings it gave to commercial mortgage bonds.

S&P said Wednesday that it had received a notice from the Securities and Exchange Commission that its enforcement staff intended to recommend pursuing civil charges against the company. The potential lawsuit would be over six ratings S&P issued for commercial mortgage-backed securities in 2011, according to a CNBC report.

“S&P has been cooperating with the commission in this matter and intends to continue to do so,” the company said in a statement.

The potential SEC lawsuit is the latest in a string of legal woes for the ratings agency. The Justice Department is suing the ratings agency for giving inflated ratings to mortgage bonds it knew to be subpar. S&P, meanwhile, contends the government is suing merely in retaliation for the agency's 2011 downgrade of the United States credit rating.

The government denies the downgrade had any role in its decision to sue. It asserts that S&P knowingly inflated bond ratings for its biggest banking clients in order to curry favor.

S&P isn’t only in trouble with the feds. Several states are suing the ratings company on similar grounds. S&P has categorically denied any wrongdoing, calling all of the lawsuits “meritless.”
 

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