This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Standard & Poor's Says Civil Lawsuit Threatened By DOJ Is Without Legal Merit And Unjustified

NEW YORK, Feb. 4, 2013 /PRNewswire/ -- Standard & Poor's Rating Services ("S&P"), a subsidiary of The McGraw-Hill Companies, Inc. (NYSE: MHP) today disclosed that the Civil Division of the United States Department of Justice ("DOJ") has informed the Company that it intends to file a civil lawsuit against S&P focusing on its ratings in 2007 of certain U.S. collateralized debt obligations ("CDOs"):

"A DOJ lawsuit would be entirely without factual or legal merit.  It would disregard the central facts that S&P reviewed the same subprime mortgage data as the rest of the market – including U.S. Government officials who in 2007 publicly stated that problems in the subprime market appeared to be contained – and that every CDO that DOJ has cited to us also independently received the same rating from another rating agency.  S&P deeply regrets that our CDO ratings failed to fully anticipate the rapidly deteriorating conditions in the U.S. mortgage market during that tumultuous time.  However, we did take extensive rating actions in 2007 – ahead of other ratings agencies – on the residential mortgage-backed securities ("RMBS") which were included in these CDOs.  As a result of these actions, more collateral or other protection was required to support AAA ratings on CDOs.  With 20/20 hindsight, these strong actions proved insufficient – but they demonstrate that the DOJ would be wrong in contending that S&P ratings were motivated by commercial considerations and not issued in good faith.

"Before 2007, and increasingly during 2007, S&P downgraded a record number of RMBS and repeatedly warned of deteriorating conditions in the housing market and potential additional downgrades to come, in many cases before our peers.  For example:
  • In 2006, S&P downgraded 400 RMBS ratings – more than in any prior year in history – mostly in the subprime sector. 
  • In February 2007, S&P was the first rating agency to take negative ratings actions against new transactions even though the pools underlying those transactions had at that time experienced no actual losses. 
  • Between February and July of 2007 alone, S&P took 637 negative actions on ratings (250 downgrades and 387 CreditWatch negative actions) on 2006 vintage subprime RMBS.

"S&P analysts worked diligently to keep up with an unprecedented, rapidly changing and increasingly volatile environment, while acting to ensure changes to their ratings reflected robust analysis and deliberation.  In fact, throughout this time, S&P included in its analysis the possibility that a rise in mortgage delinquencies would result in bondholder losses and, as a result, required substantially more RMBS collateral as protection against such potential losses to support AAA CDO ratings. Regrettably, the breadth, depth, and effect of what ultimately occurred were greater than we – and virtually everyone else – predicted.  As former SEC Chairman David S. Ruder testified before the U.S. House of Representatives:

'None of the primary market participants predicted the collapse. The risk management systems of most banks, investment banks, rating agencies, and credit default swap insurers did not predict the collapse. Regulators, including the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Department of the Treasury, the SEC, and the Commodities Futures Trading Commission did not predict the collapse.'

"A number of court rulings have dismissed challenges made with 20/20 hindsight to a credit rating agency's opinions of creditworthiness.  In an attempt to end run well-established legal precedent, the DOJ plans to use a questionable legal strategy by suing S&P under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) – a statute enacted in 1989 to stabilize and reform the savings and loan industry.  If DOJ does bring suit, we will vigorously defend our Company against such meritless litigation.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG

Markets

DOW 17,683.58 -46.53 -0.26%
S&P 500 2,068.76 -8.02 -0.39%
NASDAQ 4,991.94 -17.2740 -0.34%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs