Credit rating agency Standard & Poor’s (S&P) could be in serious trouble for allegedly “putting profits and market share above its subjectivity when rating structured finance securities” if Indiana attorney general Greg Zoeller has his way. Zoeller filed a state lawsuit against S&P this week against the ratings company for “alleged misconduct involving…analysis of toxic mortgage-backed securities (MBS).” The attorney general believes that S&P adjusted analytical models leading up to the housing crisis so that MBS and other structured finance securities would have the ratings that its clients wanted – even if the vehicles themselves were not sound. “I believe S&P intentionally misled the marketplace at a time when our country needed accurate information the most,” said Indiana secretary of state Connie Lawson in reference to the lawsuit.

The lawsuit covers the years 2004 to 2012, but leaves open the possibility that S&P had been engaged in poor ratings and analysis practices for longer. It alleges that “by 2001, the company’s desire to maximize revenue and market share by rating as many structured finance deals as possible led S&P to cater to the preferences of large investment banks and other repeat issuers of structured finance securities.” Zoeller said he believes that other states would have grounds for similar lawsuits against S&P “for misleading investors while…emphasizing its independent and objective ratings process”[1].

 

by Carole VanSickle

[1] http://www.loansafe.org/indiana-ag-zoeller-files-lawsuit-against-standard-poors