S&P Prepares to Battle the Justice Department
The battle between the Justice Department and Standard & Poor’s does not appear to be coming to an end anytime soon, as the ratings agency has hired one of the nation’s top white-collar defense attorneys.
According to Reuters, Standard & Poor’s has turned to John Keher to defend itself against a multi-billion dollar lawsuit filed by the U.S. government earlier this week. Keher is a Yale Law School graduate and was recognized as one of the 100 most influential lawyers in the United States by National Law Journal in 2006. He has represented everyone from Lance Armstrong to Enron’s Andrew Fastow.
The Department of Justice is alleging that S&P, a unit of McGraw-Hill (NYSE:MHP), improperly used its rating system to assign grades to mortgage bonds that did not predict the full magnitude of the housing downturn and nearly caused a meltdown of the global financial system. It is the first federal enforcement action against a credit rating firm over the final crisis and 13 states and the District of Columbia have also filed separate lawsuits.
For several years, the major rating agencies have been considered a prime suspect in the credit bubble, considering the firms essentially awarded junk bonds triple-A status and collected large fees in the process. The high ratings also paved the way for Wall Street to indulge itself on mortgage-backed securitization. According to unnamed sources, the Justice Department is seeking a 10-figure plus settlement and the admission of wrongdoing from Standard & Poor’s. In a statement on Tuesday, Attorney General Eric Holder said the U.S. is seeking as much as $5 billion in penalties. “This alleged conduct is egregious – and goes to the very heart of the recent financial crisis,” he said.
Naturally, S&P believes the claims are erroneous…