Finally, something's happening
The U.S. Justice Department filed a complaint yesterday in federal court in Los Angeles, accusing McGraw-Hill and S&P of mail fraud, wire fraud and financial institutions fraud. Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the U.S. seeks civil penalties of as much as $1.1 million for each violation. The company's shares tumbled the most in 25 years yesterday when it said it expected the lawsuit, the first federal case against a ratings firm for grades related to the credit crisis.Of course S&P is claiming innocence.
"A DOJ lawsuit would be entirely without factual or legal merit," S&P said in a statement yesterday before the case was filed. "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."This is going to be a tough fight however. S&P has a huge legal budget to spend and has won fights like this in state lawsuits.
U.S. District Judge James L. Graham threw out the case in September 2011, ruling the ratings were "predictive opinions," and that absent specific allegations of intent to defraud, the firms could not be held liable.But it's great to finally see the DOJ going after somebody on Wall Street. I hope this is the start of a DOJ that gets tough on America's Financial Mafia
A Cincinnati-based federal appeals court unanimously upheld that decision in December.