Judge Rules Standard & Poor Must Face Claims

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Standard & Poor’s Financial Services LLC  (S&P) is an American financial services company. It is a division of McGraw Hill Financial that publishes financial research and analysis on stocks and bonds. Located in Lower Manhattan, New York City, S&P is considered one of the Big Three credit-rating agencies, which also include Moody’s Investor Service and Fitch Ratings.

California Superior Court Judge Curtis Karnow has ruled that McGraw Hill Financial Inc.’s Standard & Poor’s unit must face California’s claims that the company deceived the state’s pension funds in its ratings of mortgage-back securities, according to Bloomberg News. The state is alleging that Standard & Poor violated false-advertising and business practices laws. S&P is accused of using “magic numbers” to inflate ratings. A mortgage-backed security is a type of asset-backed security that is secured by a mortgage, or more commonly a collection of sometimes hundreds of mortgages. The mortgages are sold to a group of individuals (a government agency or investment bank) that “securitizes”, or packages, the loans together into a security that can be sold to investors.

  

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The U.S. Justice Department is also suing Standard & Poor for fraud in a separate case in California. The Justice Department has said it may seek as much as $5 billion in penalties for losses to federally insured financial institutions that relied on S&P’s ratings, according to Bloomberg News, before the collapse of the U.S. housing market that wiped out the value of many of the securities. Superior Court Judge Curtis Karnow does not know when he will issue a final ruling. Standard & Poor has denied any wrong doing in both of these lawsuits.

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