US considering lawsuit against ratings agency
Washington - The US Justice Department and some US states on Monday informed the ratings agency Standard and Poor's that they plan to file a civil lawsuit over its overly optimistic evaluation of mortgage-backed securities.
The optimistic evaluations were made prior to the financial crisis triggered by a collapse in the housing market. Many investors based their decisions on whether to invest in the ratings. As the crisis unfolded in 2007 and 2008, the triple-A rated securities drastically lost value.
The Justice Department’s plans to sue were reported in the Wall Street Journal Monday. The ratings agency later confirmed the report, saying the threatened lawsuit was "without legal merit and unjust." Standard and Poor’s said the complete extend of the devaluation of real estate wasn’t foreseen by anyone else - neither its competitors nor government agencies. It also said it reacted quicker than other rating agencies by implementing far-reaching measures.
The ratings agencies have been criticised for years, but have defended themselves successfully by saying they only gave their opinion and didn’t recommend buying.
A civil lawsuit filed by the Justice Department and state prosecutors would be the most serious attack on the ratings agency to date. Standard and Poor’s is the number one ratings agency, but it is often named in the same breath with Moody’s and Fitch in discussions about the role of the financial crisis.
Ratings agencies were assigned by banks to evaluate the probability of mortgage-backed securities dropping. These securities are the underlying basis of the US real estate market and are purchased by banks worldwide.//DPA