Illinois’s Lisa Madigan Sues Standard & Poor’s Over Ratings

Illinois Attorney General Lisa Madigan sued Standard & Poor’s, accusing the company of a “fraudulent role’” in assigning improperly high ratings to mortgage-backed securities.

The complaint, which also names parent McGraw Hill Cos., was filed today in Cook County Circuit Court, alleging the ratings service put profit first, while purporting to provide independent, objective analyses, Madigan said in a statement.

“S&P ignored the increasing risks posed by mortgage-backed securities, instead giving the investment pools ratings that were favorable to its investment bank client base,” Madigan said.

In one 2007 online exchange among S&P workers, Madigan contends, an employee said an investment “could be structured by cows and we would rate it,” according to the statement.

“The case is without merit and we will defend ourselves vigorously, David Wargin, a spokesman for Standard & Poor’s, said in a phone interview.

Madigan seeks an order that Standard & Poor’s has committed consumer fraud; asks for a penalty of $50,000 per violation; and requests that the company pay back ill-gotten gains.

‘‘S&P emphasized the company’s integrity through independence,” according to the lawsuit, yet it “sacrificed its principles” to gain market share and profits.

The lawsuit is part of Madigan’s efforts “to provide relief and assistance to Illinois families struggling to save their homes,” she said in the statement.

“Investors relied on S&P ratings,” and the company “consistently misrepresented the risk of mortgage-backed securities,” according to Madigan.

The case is Illinois v. The McGraw-Hill Cos. and Standard & Poor’s, 12CH02535, Circuit Court of Cook County, Illinois, County Department, Chancery Division (Chicago).

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