S&P expects U.S. lawsuit over pre-crisis credit ratings
By Aruna Viswanatha and Jonathan Stempel
(Reuters) - Standard & Poor's said it expects to be the target of a U.S. Department of Justice civil lawsuit over its mortgage bond ratings, the first federal enforcement action against a credit rating agency over alleged illegal behavior tied to the recent financial crisis.
Shares of McGraw-Hill Cos, the parent of S&P, plunged 13.8 percent on Monday after news of the pending lawsuit surfaced, their biggest one-day percentage decline since the 1987 stock market crash, according to Reuters data.
An announcement of a lawsuit is expected on Tuesday, a person familiar with the matter said.
The news also caused shares of Moody's Corp, whose Moody's Investors Service unit is S&P's main rival, to slide 10.7 percent.
It is unclear why regulators may be now focusing on S&P rather than Moody's or Fimalac SA's Fitch Ratings.
S&P, Moody's and Fitch have long faced criticism from investors, politicians and regulators for assigning high ratings to thousands of subprime and other mortgage securities that quickly turned sour.
"This lawsuit is significant because it could augur future government action or, even worse for the agencies, more litigation by investors," said Jeffrey Manns, a law professor at George Washington University in Washington, D.C.
A civil case involves a lower burden of proof than a criminal case would, and could make it easier for investigators to uncover potential "smoking guns" through subpoenas, he added. Continued...