In a first for a US credit ratings agency, Standard & Poor's has received official notice from Washington that it will face a civil lawsuit over imprecise ratings-now criticised as being too high by analysts, US lawmakers and even S&P itself–of mortgage-backed investments that eventually contributed to the 2008 financial crisis.
Many of those investments received AAA ratings, a grade which implies highest safety and least risk, but imploded as the US housing bubble burst.As S&P awaits further word from the US Department of Justice, ratings agencies Moody's and Fitch will be watching to see if they are next.
Standard & Poor's parent company, McGraw-Hill Companies, plunged 13.78% in Monday trading, after investors learned of the Department of Justice's intent to file suit. The company's share price fall was its biggest one-day drop since the stock market crash of 1987.It is unclear as to why S&P is the first to be targeted but according to a recent New York Times report, settlement talks between the ratings agency and the Department of Justice fell through in the past two weeks.
The article also reported that prosecutors demanded S&P pay a $1 billion penalty and admit to wrongdoing.In a statement, S&P has said the expected Department of Justice is "entirely without factual or legal merit."
–CNN