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The Department of Justice has filed a civil lawsuit against Standard and Poors alleging that S&P engaged in a scheme to defraud investors in structured financial products known as Residential Mortgage-Backed Securities (RMBS) and Collateralized Debt Obligations (CDOs).
The lawsuit alleges that investors, many of them federally insured financial institutions, lost billions of dollars on CDOs for which S&P issued inflated ratings that misrepresented the securities’ true credit risks.
The complaint also alleges that S&P falsely represented that its ratings were objective, independent, and uninfluenced by S&P’s relationships with investment banks when, in actuality, S&P’s desire for increased revenue and market share led it to favor the interests of these banks over investors.
S&P along with other rating agencies Moodys and Fitch were an integral part of the 2008 financial crisis. The rating agencies were supposed to provide sound analysis of the mortgage securities they were reviewing but instead, as alleged in the DOJ complaint, cut corners and ignored due diligence in order to secure fees from the Wall Street banks. Due to the complicity of the rating agencies, the toxic composition of the assets was never properly evaluated or disclosed sowing the financial markets with financial time bombs that upon detonation brought the global economy to its knees.
Critics of the suit are focusing on the timing and who is included or rather excluded from the suit. Some are claiming the S&P suit is vengeance for the firm downgrading US debt with others highlight that the vengeance has a dash of intimidation mixed in as other rating firms evaluate American credit during the sequestration debate.
The U.S. is heading into another round of brutal budget debate that created a meaningful threat of yet another credit downgrade. In an ideal world of due process, the DOJ suit wouldn’t have an impact on the chances of a reduction in the US rating. In the real world, the suit may reduce the likelihood of an agency taking a stance against the U.S.
Regardless of the motivation, the suit clearly has merit. S&P’s ratings were proven incorrect and there seems to be an email trail establishing they knew they were incorrect but wanted the money. S&P’s lawyers are claiming their poor ratings are protected under free speech, unfortunately for them committing fraud is not.
Photo by Brendel under Creative Commons License
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Good.
Let’s hope, though, that the government doesn’t settle for peanuts (relatively), which is what usually happens when the feds finally get motivated to prosecute big business.
Thanks DS. Have heard banks will piggyback on the DOJ suit.
Would be nice if S&P provided evidence against hedge funds and other “dark money.”
$5 Billion doesn’t seem hardly enough. Let’s hope it’s just the DOJ’s earnest money to get S&P’s, and others, attention. Or maybe a down payment on a Wall Street house of cards that was fraudulently built by these insider’s greed. Put the legal squeeze, on this sleaze, please.
Some how I just believe that this will end up in a settlement worth peanuts, and that those of us who live in areas where much of this “fraud” occured, and now have homes that are worth 1/3 what we paid for them, will end up with nothing, as per obamas orders to geithner to “foam the runways” and do everything possible to take care of banks and cover up fraud. Good legacy boy.
How much does S & P make? Steal $20 billion and pay a fine of $5 billion? Cause damages of a $Trillion and pay the Government $5 billion …er…no….lets settle on $2.5 Billion and admit no wrongdoing.
Watering down stock value is a crime…… Representing investment as AAA while driving baseline cost of energy to $147.50 per barrel surely killed the housing bubble and undermined the value of the mortgages. Considering oil went from $56.00 dollars a barrel to $147.50 per barrel in 18 months, who would have “thunk” it would all go south….. Like watering down stock values, it was a scam…..
A ratings analyst, ignored by his own, because the rating corp would not get paid for an adverse rating on investments sold by brokers who were also engaged in oil futures trading?
The new accounting for Capitalism taught at Wharton Business School- Profits on the RIGHT and losses on the LEFT.
The definition of “Corporate Sodomy.”
14 Trillion?
They say it is better if you just relax and let it happen.
Boy, if they would roll-over on the other bad guys that would be nice!
AG Kamela Harris from CA is also joining with other States to sue S&P fwiw.
I doubt that much will of this that will actually, you know, benefit the 99%, who are the ones mostly suffering from all of this graft, corruption and greed in high places.
Is this yet more “Sound & Fury signifying not much”??? aka: Kabuki Show?
The math, as you so eloquently point out, seems to favor the criminal(s). I ‘spose that is to expedite a settlement. The DoJ under Obama seems to want to avoid litigation at all costs. Pesonally, I think the DoJ is a bunch of pansies or that they are doing just what Obama wants them to do. Look like the bad guys are being prosecuted when, in fact, they really aren’t.
If anyone had been tried for a crime up to this point all these guys would be rolling over on each other like nobody’s business.
Paying a fine is just built in cost of doing business and while unpleasant doesn’t affect your standing at the Country Club.
I realize this is the just the tip of the iceberg. But as my good friend says, ” it’s gone ( the money ), and we ( citizens ) ain’t never gettin’ it, or our former lives, back. “
I can only say that a friend of a friend in the garmetn industry said they just ordered new costumes. THAT should give us all a clue.
Um, lemmeeseennow, if there was a fraud did an actual person or persons plan and execute the fraud or did …it…just…happen.
nail + head.
Agree. I heard that O kept most all of Bush’s Liberty Law Scool Christian lawyers at DOJ. So amongst the chosen people turning the other cheek is the rule of law.
You’re right. Ain’t nobody losing the prime “tee time” over this. Just locker room fodder, “You guys won’t believe how much we snookered the people AND the government out of. Now I got a chalet in Aspen AND St. MOritz.”
Whiuch, makes one think………why S&P? I guess we’ll have to wait for the movie.
Fuck their rock salt laced petroleum jelly! BTW, rape is rape. From clergy sex abuse to the present Wall Street criminals protected. Its all to beautiful. Not…
See you are not relaxed and apparently not enjoying it. Don’t worry history tells us Fascists always lose in the end. But I agree the waiting is agonizing and long.
Clever and a Civil suit too:
1. There is no 5th amendment protection
2. It has to be proven by the preponderance of evidence, not beyond all reasonable doubt
3. And when S&P wants to settle, all their client files will be opened and any conspiracy will become evident. I’d like to see the emails between them & their clients (the gov already has copies, thanks to the NSA).
4. Obama does not need them any more, he’ll never run for election again.
Looks like the administration had to at least bring one high profile case against the Wall Street Financial Complex and so they picked S&P. It makes perfect sense. S&P fired shots at the administration with their absurd downgrade of the US’s credit rating not too long ago. It’s the same story with the Obama Administration. The only people ever held accountable are the ones who the administration perceives as enemies. Unfortunately for the US, the majority of the people who are investigated in the US are whistle-blowers. Criminals, for the most part, get a pass.
Or the individuals who members of the administration go to lunch with and/or work for. Like, oh I dunno, Jamie Dimon and Lloyd Blankfein – For starters. (They would further view them as “too big” to pick a fight with. In other words, they’re suckups and frightened little bitches.)
Plus S & P is pretty much controlled by John McGraw and he hates Obama and vice versa.
Ah, just another important cog in the Bank created Ponzi scheme. What! The DOJ is just getting it now? And what about AIG insuring these rank securities with no money to back it up?
I believe that’s where they “figured” WE would fit in.
These emails already have shown that the grunt analysts did not have the paperwork necessary to actually evaluate these mortgages.
The math used to create AAA ratings out of CCC input must be interesting.
No individuals at S&P are facing criminal fraud charges?
No individuals at S&P are facing civil fraud charges? Their salaries over the last 15 years are really fraudulent transfers and should be recouped.