Whether it might come in the next few days or next few months isn’t clear, but according to unnamed sources cited by The New York Times it’s looking like a major consumer fraud case against bond rating giant Standard & Poor’s may be in the offing.
The newspaper reports that the company is in the process of negotiating a settlement with state and federal authorities and that the price tag on the deal could be more than $1 billion in fines. The Times says that would effectively erase a full year of S&P’s operating profits.
The basis of the action is the government’s claim that ahead of the most recent recession, S&P analysts gave subprime mortgage-backed investments solid ratings, even though they were known to be risky. The Justice Department has claimed that S&P was paid by banks to deliver the good ratings. That had the effect of making the agency’s claims of objectivity and independence fraudulent, and that it amounted to a consumer protection violation.
What makes the story more interesting is that the possible settlement amount is about the same as what the government was willing to accept before it ever filed suit. And in the two years since, the paper says S&P has probably paid out tens of millions of dollars for the fight.
The thrust of S&P’s argument during that time has apparently been that the civil fraud charges reflect government retaliation for the firm’s cutting the U.S. credit rating to one grade less than the top AAA rating. Federal officials have denied that.
Collective litigation cases such as this one are of a type that can be hugely complex. That does not mean that they shouldn’t be brought. But it does reinforce that those who believe they might have a case are best advised to consult attorneys with extensive experience in such matters to be sure of their rights and options.
Source: The New York Times, “S.&P. Nears Settlement With Justice Dept. Over Inflated Ratings,” Ben Protess, Jan. 12, 2015