S&P Early Victory in U.S. Fraud Suit Seen as Unlikely

McGraw-Hill is fighting a lawsuit from the U.S. Government, and the deadline to file their response is today. Specifically, the S&P unit is the one in trouble, recently drawing fire from the government that had made claims that their credit ratings were fraudulent and a major cause of the 2008 financial collapse. The S&P unit is facing more than $5 billion in penalties if the government’s claims are uncontested.

The government has cited emails between S&P employees that indicate fraudulent business practices, such as giving lower ratings to attract more business. Since the raters did not have any actual connection to the ratings they gave out, they could easily inflate ratings without any direct consequence. The focus of the government is the allegedly fraudulent ratings of collateralized debt obligations, which were a major factor of the housing bubble and the ensuing plummet. In their defense, S&P will have to consider the best way to present their case against the government while also working to preserve their name in the public’s eye so that they can continue to draw business as a reliable credit rater.

According to an expert’s opinion, the case will probably not go to trial, and instead, S&P will settle with the government. The government is “looking for a scapegoat.” In my opinon though, I wonder if S&P can really just settle and basically admit fault by paying the penalties without severley affecting their business. Their stock dropped significantly after the announcement of the lawsuit.

Source:
http://www.bloomberg.com/news/2013-04-22/s-p-early-victory-in-u-s-fraud-suit-seen-as-unlikely.html

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