S&P Fraud Will Be Tough for Government to Prove, Whitney Says

The U.S. government will have a difficult time proving that McGraw-Hill Cos. and its Standard & Poor’s unit committed fraud, analyst Meredith Whitney said.

“The case of the government is that S&P actively defrauded investors,” Whitney, founder of Meredith Whitney Advisory Group, said today in an interview with Tom Keene on Bloomberg Television. “I find that very hard to believe and I think that’s going to be very hard to prove.”

Whitney, 43, also said that the government has to be careful how they handle the case as it could have “unintended consequences” and disrupt the bond market.

The Justice Department this week sued McGraw-Hill, claiming that S&P deliberately understated the risk of bonds backed by mortgages made to the riskiest borrowers to win business from Wall Street banks. S&P rated more than $2.8 trillion of residential mortgage-backed securities and about $1.2 trillion of collateralized-debt obligations from September 2004 through October 2007, according to the complaint.

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