Justice Department and States to Sue Standard & Poor’s Ratings Service For Fraudulently Rating Mortgage Bonds

The New York Times Dealbook blog has news of an important new case likely to be filed soon:

The Justice Department, along with state prosecutors, plans to file civil charges against Standard & Poor’s Ratings Service, accusing the firm of fraudulently rating mortgage bonds that led to the financial crisis, people briefed on the plan said Monday.

A suit against S.&P. would be the first the government has brought against the credit ratings agencies related to the financial crisis, despite continued questions about the agencies’ conflicts of interest and role in creating a housing bubble.

Up until last last week, the Justice Department had been in settlement talks with S.&P., these people said. But the negotiations broke down after the Justice Department said it would seek a settlement in excess of “10 figures,” or at least $1 billion, these people said. Such an amount would wipe out the profits of S.&P.’s parent, the McGraw-Hill Company, for an entire year. McGraw-Hill earned $911 million last year.

During settlement negotiations, the Justice Department held out the threat of a criminal case against S.&P., the people said. Ultimately, the government plans to bring a civil suit, which has a lower burden of proof than a criminal case.