NC Attorney General challenges Standard and Poor in lawsuit - | WBTV Charlotte

NC Attorney General challenges Standard and Poor in lawsuit


The following is a release from the North Carolina Department of Justice. It has not been edited.

Credit rating agency Standard and Poor's knowingly inflated its ratings for certain risky securities, contributing to the nation's financial crisis, Attorney General Roy Cooper alleged Tuesday in a lawsuit he filed along with several other states and federal authorities.

"Investors thought they were getting objective information but they got misled and our entire economy paid a heavy price," Cooper said. "These misrepresentations played a major role in creating the national financial crisis, and they must be prevented from happening again."

Cooper filed a lawsuit today in Wake County Superior Court asking the court to stop Standard and Poor's (S&P) from claiming objectivity to the public and require the company to change the way it does business.

Cooper and the other state attorneys general bringing similar actions seek to hold S&P accountable for misrepresenting its objectivity in rating securities that were backed by subprime mortgages. Investors and market participants relied on S&P to provide independent and objective credit ratings for these financial products. The federal and state complaints allege that S&P's analyses were in fact influenced by fees paid by its investment bank clients. As a result, the company knowingly inflated credit ratings for high-risk assets packaged and sold by Wall Street banks.

Structured finance securities backed by subprime mortgages were at the center of the financial crisis. These financial products, including residential mortgage-backed securities (RMBS) and collateral debt obligations (CDOs), derive their value from the monthly payments consumers make on their mortgages. 

Cooper alleges that S&P publicly declared its objectivity while privately compromising it to get and keep the business of investment banks that were issuing these financial products and paying S&P to analyze and rate them. Assessing actual credit risk was less important to S&P than making money and winning new business, and the company adjusted its models to assign as many top ratings as possible so it could earn more money from its clients. S&P also delayed downgrading certain risky investments in order to continue earning lucrative fees.

S&P's alleged misconduct began as early as 2001, became particularly acute between 2004 and 2007, and continued until as recently as 2011.

Along with North Carolina, states filing actions against S&P today include Arizona, Arkansas, California, Colorado, Delaware, the District of Columbia, Idaho, Iowa, Maine, Missouri, Pennsylvania, Tennessee, and Washington. The U.S. Department of Justice also filed suit against S&P on Monday. Connecticut, Illinois and Mississippi previously filed actions against S&P. 

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