The Justice Department of the United States Government has filed a $5 billion civil suit against ratings agency Standard & Poor’s.
The suit argues the firm ignored its own standards to issue AAA ratings to sub-prime mortgage bonds, which then imploded in the GFC, costing investors billions.
It’s the first suit to be filed against one of the three major global ratings agencies, which have been criticised for fuelling the sub-prime mortgage bubble by giving risky assets safer ratings than they warranted.
S&P said in a statement the suit was “entirely without factual or legal merit”. It’s arguing it is being unfairly targeted for failing to predict the housing meltdown.
The suit comes after the two sides failed to negotiate on settlement. The Wall Street Journal reports the government was seeking penalties of more than $1 billion.
Shares in McGraw-Hill fell 14% on Monday after news of the suit. No individuals were charged in the 199-page lawsuit.