LOS
ANGELES, United States, Tuesday February 5, 2013 – The United States Department
of Justice has filed a civil fraud lawsuit against one of the world’s larger
credit-ratings agencies that services several Caribbean Community (CARICOM)
member states.
On
Monday, the department said it filed the suit in a US federal district court in
which it accused the Wall Street-based Standard & Poor’s (S&P) of inflating
the ratings of mortgage investments and setting them up for a crash when the
financial crisis began.
Over
the years, S&P, as well as other Wall Street-based credit rating firms,
such as Moody’s and Finch, has rated the economies of most CARICOM countries,
such as Jamaica, Trinidad and Tobago, Barbados, the Bahamas, Belize and
Suriname.
In
Monday’s suit, the US accused S&P and its parent company, McGraw-Hill
Companies, of “knowingly and with the intent to defraud, devised, participated
in, and executed a scheme to defraud investors” in certain mortgage-related
securities from September 2004 to October 2007.
The
suit also charges that S&P falsely stated that its ratings “were objective,
independent, uninfluenced by any conflicts of interest.”
The
US Justice Department said the suit against S&P focuses on about 40
collateralized debt obligations (CDO), an exotic type of security made up of
bundles of mortgage bonds, which comprised individual home loans.
“As
S&P knew, contrary to its representations to the public, S&P’s desire
for increased revenue and market share in the RMBS (residential mortgage-backed
securities) and CDO ratings markets, and its resulting desire to maintain and
enhance its relationships with issuers that drove its ratings business,
improperly influenced S&P to downplay and disregard the true extent of the
credit risks,” the suit claims.
The
Justice Department said the securities were created at the height of the
housing boom, and that S& P was paid fees to the tune of US$13 million for
rating them.
US
prosecutors said they have unearthed a multiplicity of e-mails written by
S&P employees, expressing deep concern about the way in which such
securities were rated.
In
response to the lawsuit, S&P said in a statement that the Justice
Department “would be wrong in contending that S&P ratings were motivated by
commercial considerations and not issued in good faith.”
The
rating agency said it had started “stress-testing” the mortgage-backed
securities it rated as early as 2005, in figuring out how they would perform in
a severe market downturn.
Two
years ago, a US Senate probe found that S&P and Moody’s, from 2004 to 2007,
used “inaccurate rating models” that failed to predict how high-risk mortgages
would perform.
The
investigation also found that the rating agencies allowed competitive pressures
to affect their ratings, and failed to reassess past ratings after improving
their models in 2006.
Even
against this background, S&P said on Monday that the US Department of
Justice’s lawsuit was “entirely without factual or legal merit.”
The
lawsuit came after S& P and the Justice Department failed to reach an
agreement on a civil penalty to the tune of US$1 billion for S&P’s alleged
wrongdoing. (CMC)
SOURCE: http://www.caribbean360.com/index.php/business/663925.html
These facts have been known since many years to market insiders/investors playing both sides of the derivatives market...
ReplyDeleteHallelu Jah! The truth is always revealed (however slow).