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« The Real Obama Climate Plan | Main | RBS To Pay $800 Million Libor Fine, No Criminal Charges »
Wednesday
Feb062013

WATCH: Holder Slams S&P With $5 Billion Fraud Lawsuit

No criminal charges against S&P.

More coming in a follow-up story, but evidence has surfaced today that this was an act of prosecutorial revenge against S&P for their high-profile downgrade of the U.S. AAA rating in 2011.

Here are juiciest parts of the 119 page lawsuit (from the emails)...

Much more below.

**

Reuters

The government has filed a $5 billion civil complaint against Standard & Poor's.  The 119-page lawsuit, filed late Monday in federal court in Los Angeles, is the first from the government against a ratings agency, a sector that has generally shielded itself from liability by citing First Amendment protection of free speech.

No individuals were charged in the DOJ's lawsuit, and it was not immediately clear why the government focused on S&P instead of rivals Moody's Corp or Fimalac SA's Fitch Ratings, which were also major raters of such securities.

A source close to S&P said the firm expected a years-long battle with the government over the lawsuit. Settlement talks recently collapsed, the source said, after the government sought a penalty of over $1 billion and admissions of wrongdoing, which would exposed the firm to outside liability.

"There was no fraud," S&P lawyer Floyd Abrams said on CNBC Tuesday morning. "The ratings that were issued were believed by the people who issued them. And that's what the government has got to disprove."

Between September 2004 and October 2007, as stress in the housing market was starting to emerge, S&P delayed updates to its ratings criteria and analytical models, which weakened its criteria beyond what analysts believed was needed to make them more accurate, the Justice Department said.

During that period, according to the complaint, S&P issued credit ratings on $2.8 trillion worth of mortgage securities and some $1.2 trillion in related structured products.  It charged up to $750,000 per deal it rated, which meant that S&P viewed the investment banks that issued the securities as its main customers, according to the complaint.

In August 2004, the head of S&P's commercial mortgage-backed securities sent an email to her colleagues and said they planned to meet to discuss adjusting criteria "because of the ongoing threat of losing deals.  We just lost a huge Mizuho RMBS deal to Moody's due to a huge difference in the required credit support level ... our support level was at least 10% higher than Moody's," the complaint said.

Continue reading...

---

Highlight (1 minute):

Eric Holder announces S&P lawsuit.

"By knowingly issuing inflated credit ratings for CDOs - which misrepresented their creditworthiness and understated their risks - S&P misled investors, including many federally insured financial institutions, causing them to lose billions of dollars.  In addition, we allege that S&P falsely claimed that its ratings were independent, objective, and not influenced by the company's relationship with the issuers who hired S&P to rate the securities in question - when, in reality, the ratings were affected by significant conflicts of interest, and S&P was driven by its desire to increase its profits and market share to favor the interests of issuers over investors."

---

Complete press conference:

DOJ Press Release...

Full Video Including Q&A Session...

 

 

Photo by William Banzai7...

The Monster

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Reader Comments (9)

Feb 5, 2013 at 10:28 PM | Registered CommenterDailyBail
yawnfest.
Feb 5, 2013 at 10:32 PM | Unregistered CommenterSKINFLINT
Skin

There is actually some flavor to this story, and it's coming in the next post. It seems DOJ started to pursue S&P right after they downgraded our AAA rating. This was a revenge prosecution.
Feb 5, 2013 at 10:53 PM | Registered CommenterDailyBail
Here's the juicy part.

http://blogs.marketwatch.com/thetell/2013/02/05/from-the-sp-treasure-trove-talking-heads-best-coins-and-downgrade-mortimer-downgrade/

From the S&P treasure trove: Talking Heads, best coins, and ‘Downgrade, Mortimer, Downgrade’
Feb 5, 2013 at 11:02 PM | Registered CommenterDailyBail
DB. Yea pretty much. Fact remains that these guys just never seem to get thrown in jail. Would really like to see some of these guys in a Federal Pen rather than fines that don't deter the crimes. A real Federal Pen. The kind you and I would have to go to if we had broken laws like these guys.
Feb 6, 2013 at 9:50 AM | Unregistered CommenterSKINFLINT
"This was a revenge prosecution."

I think your right DB, otherwise wouldn't Fitch and Moody's be facing the same charges.
Feb 6, 2013 at 11:22 AM | Unregistered CommenterSagebrush
How long can a society last when laws & crimes & punishment are ignored?
Feb 6, 2013 at 2:48 PM | Unregistered CommenterTR
Maine sues Standard & Poor’s, alleges deceptive practices led to ’08 financial crisis

http://bangordailynews.com/2013/02/05/business/maine-sues-standard-poors-alleges-deceptive-practices-led-to-08-financial-crisis/

[snip]

Maine Attorney General Janet Mills said Tuesday morning that her office has filed a lawsuit against Standard & Poor’s Financial Services LLC over the agency’s mortgage bond ratings in the run-up to the 2008 financial crisis.

The state joins the U.S. Department of Justice, which filed a suit against S&P late on Monday, and several states pursuing legal action against the company, a subsidiary of McGraw-Hill Cos. Inc.

Mills told the Bangor Daily News on Tuesday that her office has worked with investigators at the Justice Department and other states for months to develop the case against the company.

Maine’s complaint, filed Tuesday morning in Kennebec County Superior Court, alleges that S&P violated the Maine Unfair Trade Practices Act by engaging in unfair and deceptive business practices in the rating of certain complex finance securities before the financial crisis, and “operated with an inherent conflict of interest, prioritizing profits over objective ratings,” according to a statement from Mills’ office.

Mills stressed that Maine’s complaint is separate from the suits filed by the Justice Department and other states, and that S&P will need to answer specifically to the state’s complaint under the Maine Unfair Trade Practices Act.
Feb 6, 2013 at 5:10 PM | Unregistered Commenterjohn
Maybe Eric is finally finding his balls.
Now prosecute the military torturers.
Now prosecute the lying NeoCons.
Telling a lie to provoke war is a WARCRIME
Feb 18, 2013 at 7:03 PM | Unregistered Commenterprofnasty

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