The Feds' fraud suit against S&P

The Justice Department charged S&P with defrauding investors by issuing mortgage security ratings it knew to be misleading

U.S. Attorney General Eric Holder announced that the United States is bringing a civil lawsuit against Standards & Poor's, Feb. 5.
(Image credit: Chip Somodevilla/Getty Images)

Better late than never, said John Cassidy at The New Yorker. Ever since the housing crisis hit, people have clamored for the authorities to hold rating agencies accountable for giving prime ratings to toxic subprime mortgage securities. This week, finally, the Justice Department filed a $5 billion fraud suit against Standard & Poor's, the largest U.S. rating agency, charging that it defrauded investors by issuing ratings it knew to be misleading. It's tough to predict how this case will turn out, of course. "I, for one, wouldn't dismiss S&P's chances of beating the rap." But the Justice Department's bold move shows the initiative its critics have demanded for so long. I just wish this weren't such an exceptional development, said Michael Hirsh at National Journal. "It's been four years since the financial crisis, and no Wall Streeter has gone to jail or even paid out a penalty severe enough to cost him his palace in the Hamptons." The question now is whether the Justice Department will stick to its guns and "force S&P to admit its wrongdoing formally."

The S&P case is unique for several reasons, said Jason Breslow at PBS. The government is seeking by far "the largest penalty to stem from the financial crisis," and reportedly pushing hard for an admission of guilt. Still, it's hard to tell whether prosecutors are really starting to punish white-collar crime more aggressively. "I never know whether to applaud a new case or be somewhat suspicious the department hopes to score just enough points to manage public perception," said Jeff Connaughton, author of The Payoff: Why Wall Street Always Wins.

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