(The following is a reformatted version of a press release
issued by the Office of Attorney General George Jepsen and
received via electronic mail. The release was confirmed by the
Attorney General Leads Multistate Coalition Challenging Standard
& Poor’s Ratings Structured Finance Securities Backed by
Subprime Mortgages Contributed to Financial Crisis 
TUESDAY  FEB. 5, 2013 
WASHINGTON -- Attorney General George Jepsen announced today
that the U.S. Department of Justice, 16 states and the District
of Columbia have filed lawsuits against Standard & Poor’s
Financial Services LLC (S&P), for alleged misconduct by the
credit rating agency involving structured finance securities,
which were at the heart of the nation’s financial crisis. 
Attorney General Jepsen joined U.S. Attorney General Eric Holder
at the Department of Justice for the announcement, with
attorneys general from several of the participating states.
Connecticut was the first state to sue S&P and its parent, The
McGraw-Hill Companies, Inc., on these allegations in March,
2010, and is leading the multistate coalition. 
The federal and state complaints allege that despite S&P’s
repeated statements emphasizing its independence and
objectivity, the credit rating agency allowed its analysis to be
influenced by its desire to earn lucrative fees from its
investment bank clients, and knowingly assigned inflated credit
ratings to toxic assets packaged and sold by the Wall Street
investment banks.  This alleged misconduct began as early as
2001, became particularly acute between 2004 and 2007, and
continued as recently as 2011. 
Structured finance securities backed by subprime mortgages were
at the center of the 2008 financial crisis.  These financial
products, including residential mortgage-backed securities
(RMBS) and collateral debt obligations (CDOs), derive their
value from the monthly payments consumers make on their
“We believe that S&P’s analytical models for rating structured
finance securities were directly influenced by the demands of
S&P’s powerful investment banking clients. Contrary to what S&P
was publicly representing, S&P served its own financial
interests and those of the investment banks. Countless investors
and market participants, including state regulators, were misled
by S&P’s promise that its analysis was independent and
objective.  S&P violated the trust that it purposefully
cultivated with the marketplace leading to disastrous results,”
Attorney General Jepsen said. 
The state lawsuits seek court orders to stop S&P from making
misrepresentations to the public; changes in the way the company
does business; civil penalties and disgorgement of ill-gotten
profits, which may total hundreds of millions of dollars. 
Connecticut’s lawsuit, brought under the Connecticut Unfair
Trade Practices Act, is pending in Hartford Superior Court.  The
States of Mississippi and Illinois filed lawsuits against S&P in
2011 and 2012, respectively, based on Connecticut’s theory of
the case. 
Filing lawsuits today are:  Arizona, Arkansas, California,
Colorado, Delaware, the District of Columbia, Idaho, Iowa, North
Carolina, Maine, Missouri, Pennsylvania, Tennessee, and
Connecticut also assisted the initial stages of the Department
of Justice’s investigation because of its earlier investigation
of S&P. “Today’s announcement is the result of unprecedented
cooperation between state attorneys general and the Department
of Justice.  Combining the resources and authority of our state
and federal offices increases the likelihood of success in
complex financial cases, and winning real protections for
consumers,” Jepsen said. 
The complaints allege that investors and other market
participants, such as state regulators, relied on S&P’s promises
of independence and objectivity.  Instead, S&P acted to benefit
its own financial interests by adjusting its analytical models
for rating residential mortgage-backed securities and collateral
debt obligations to ensure it assigned as many AAA ratings as
possible.  Assessing actual credit risk was of secondary
importance to revenue goals and winning new business, the
complaints allege. 
Further, the complaints allege that S&P’s profit motive affected
its monitoring, or surveillance, on previously rated RMBS and
CDOs. In order to continue earning lucrative fees, the
complaints allege, S&P delayed taking rating actions on impaired
RMBS and continued rating new CDOs even after it determined that
the security’s underlying collateral was impaired. 
The congressionally appointed bipartisan Financial Crisis
Inquiry Commission concluded in its final report that the
financial crisis “could not have happened” without ratings
agencies such as S&P. 
S&P and its chief competitor, Moody’s Investors Service, Inc.
(Moody’s), dominate the market for rating structured finance
securities and are responsible for rating virtually all
structured finance securities issued into the global capital
markets. Connecticut has brought a similar lawsuit against
Moody’s, which is pending in state court.
Staff from the OAG’s Finance and Antitrust and Government
Program Fraud departments are working with the Attorney General
on this case, including Assistant Attorneys General Matthew
Budzik, Finance department head; Michael Cole, Antitrust and
Government Program Fraud department head; George O’Connell and
Lorrie Adeyemi; Legal Fellow Ryan Ponte, and Paralegal Holly
MacDonald. Former Assistant Attorney General Laura Martella also
View Connecticut’s complaint here 
Susan E. Kinsman;
Office: 860-808-5324; Cell: 860-478-9581
Facebook: /AGGeorgeJepsen;
(bjh) NY 
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