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Receiving Wide Coverage ...Charges Filed: The Justice Department is suing credit rating agency Standard & Poor's for allegedly ignoring their own standards and rating mortgage investments much higher than they should have been in years leading up to the financial crisis. Per the suit, filed by U.S. Attorney General Eric Holder: S&P "falsely represented that its credit ratings of RMBS and CDO tranches were objective, independent, uninfluenced by any conflicts of interest that might compromise S&P's analytical judgment, and represented S&P's true current opinion regarding the credit risks." According to Dealbook, prosecutors "have uncovered troves of e-mails written by S.& P. employees" that indicate concern over how mortgage investments were being rated. The complaint reproduces an internal instant message written by an S&P employee in April 2007 that reads "We rate every deal. It could be structured by cows and we would rate it."
February 5 -
Receiving Wide Coverage ...RBS, Part II: Bankers behaving badly are all too happy to document said behavior in any type of internal correspondence they can. That seems to be a big takeaway this week as the Royal Bank of Scotland's $612 million Libor settlement has yielded incriminating emails and instant messages similar to those the Justice Department revealed in its civil case against Standard & Poor's. The most notable RBS correspondence making the rounds is an instant message a senior yen trader wrote in mid-2007: "The jpy libor is a cartel now. It's just amazing how libor fixing can make you that much money." Some other things we're learning from the RBS settlement the morning after: British taxpayers may wind up paying some portion of the fine, as "the government still owns an 82% stake in the bank." Emails aside, RBS could emerge from the scandal "about as well as shareholders can have dared hope." And, banks, in general, "are keen" to reach Libor settlements, (for which, Dealbook offers this handy tutorial.)
February 7
The U.S. government is resisting an effort by Standard & Poor's to move to the federal level a string of lawsuits by states that charge the ratings agency with misleading investors.
S&P, in papers filed on March 25 with the U.S. District Court in Hartford, Conn., asked the court to take over a suit brought against the company by the state's attorney general, George Jepsen. Officials in 17 states and the District of Columbia have charged S&P with rating securities backed by residential mortgages more highly than they should have been in the run-up to the financial crisis.
The ratings agency argues that the state lawsuits overlap with charges against the company by the Justice Department in a lawsuit filed in February. The cases allege "virtually identical factual and legal theories that seek to regulate S&P's conduct in the very areas that are at the heart of the federal regulatory scheme," S&P wrote.
On Friday the Justice Department pushed back, charging in court papers that S&P failed to sufficiently support its request. "Based on the nature of the causes of actions alleged by the states…there is no federal-question jurisdiction justifying removal" Justice officials wrote.
An S&P spokesperson referred a request for comment to the company's court filing. It was not immediately clear when the court might rule on S&P's request.
A DOJ official did not respond immediately to a request for comment on its filing, which was first reported by
The cases are proceeding concurrently in both state and federal forums. In its lawsuit, filed in the U.S. District Court in Los Angeles, Justice alleges that federally insured financial institutions lost billions of dollars through investments in mortgage-backed securities and collateralized debt obligations rated by S&P over a three-year period starting in 2004. S&P inflated ratings to win business from investment banks that sold the securities, Justice says.
Connecticut and other states have charged the ratings agency with violations of laws governing unfair trade practices.
S&P, which has said DOJ's charges lack merit, is asking the federal courts to consolidate the state cases in the U.S. District Court in Manhattan while seeking to move individual state filings to federal court in the respective states. The state lawsuits "seek to replace the carefully crafted federal regulatory regime with a patchwork of state measures, each of which would have the likely effect of becoming de facto national regulation since ratings are generated, published and used on national basis," S&P wrote in court papers filed on March 8.
Jepsen in Connecticut, who sued S&P and Moody's in 2010 for allegedly issuing ratings tinged by their desire to earn fees, has opposed S&P's effort to move the case.
