Chicago Judge Okays AG Suit vs S&P. Bad Omen for Rating Agencies?

Chicago judge okays AG suit vs S&P. Bad omen for rating agencies?

This has not been a good week for Standard & Poor’s. Stock in S&P’s parent company, McGraw Hill, took a dive Monday after an Australian judge ruled that S&P is liable to investors for its misleading ratings of collateralized debt obligations. On Wednesday morning in federal court in New York, rating agency nemesis Shira Scheindlin — the U.S. district judge presiding over two institutional investor fraud cases against the agencies and Morgan Stanley — agreed to reconsider some previous rulings in favor of the defendants. And then Wednesday afternoon, a state court judge in Chicago ruled that Illinois Attorney General Lisa Madigancan proceed with her claim that S&P engaged in deceptive business practices when it told the investing public that its ratings of complex structured finance products were objective and independent.

The AG’s suit, filed last August, asserts that the rating agency represented itself to be an independent evaluator of the securities, even though it often worked hand-in-glove with issuers to come up with a rating. According to the AG, S&P’s “issuer pays” business model, in which the agency is hired by issuers to deliver a rating, compromised its independence and objectivity, so the rating agency’s public assurances to the contrary violated that state’s deceptive trade practices act.

Rest here…


Leave a Reply