Washington: The United States Tuesday sued Standard and Poor's alleging that the credit rating agency lied about its objectivity and independence and issued inflated ratings for certain structured debt securities, causing investors to lose billions of dollars.
"Put simply, this alleged conduct is egregious - and it goes to the very heart of the recent financial crisis," the US Attorney General, Eric Holder, said.
The Department of Justice alleged that S&P engaged in a scheme to defraud investors in structured financial products known as Residential Mortgage-Backed Securities (RMBS) and Collateralized Debt Obligations (CDOs).
The lawsuit alleges that investors, many of them federally insured financial institutions, lost billions of dollars on CDOs for which S&P issued inflated ratings that misrepresented the securities' true credit risks.
The complaint also alleges that S&P falsely represented that its ratings were objective, independent, and uninfluenced by S&P's relationships with investment banks when, in actuality, S&P's desire for increased revenue and market share led it to favour the interests of these banks over investors.
"Tuesday's action is an important step forward in our ongoing efforts to investigate - and - punish the conduct that is believed to have contributed to the worst economic crisis in recent history.
"It is just the latest example of the critical work that the President's Financial Fraud Enforcement Task Force is making possible," Holder said.
"Our investigation revealed that, despite their representations to the contrary, S&P's concerns about market share, revenues and profits drove them to issue inflated ratings, thereby misleading the public and defrauding investors.
"In so doing, we believe that S&P played an important role in helping to bring our economy to the brink of collapse," said the Acting Associate Attorney General Tony West.