Standard & Poor’s Sued by New Jersey Over Bond RatingsChristie Smythe
Standard & Poor’s Financial Services LLC and its parent, McGraw Hill Financial Inc., were accused in a lawsuit by New Jersey of failing to give objective ratings to mortgage-backed securities.
Standard & Poor’s claimed that its ratings of the securities were independent when they were actually driven by sales goals, John J. Hoffman, New Jersey’s acting attorney general said today in a statement. The filing of the lawsuit couldn’t immediately be confirmed in court records.
“Standard & Poor’s was not providing independent investor information, but instead acting in its own business interests, and in the interests of favored clients whose fees provided the company with a significant revenue stream,” Hoffman said.
The deceptive ratings for mortgage-backed securities and other structured financial products were assigned from at least 2001 to 2008, according to a copy of the complaint posted on the New Jersey attorney general’s website.
S&P has been sued by the federal government and more than a dozen other states over similar allegations. The U.S. case is pending in federal court in Santa Ana, California. The state cases are consolidated before a judge in Manhattan federal court.
Analyzing structured finance products was lucrative business for Standard & Poor’s, the state claimed. The company charged three or four times as much to analyze structured securities as it did to rate corporate bonds, the attorney general’s office said.
In 2006, Standard & Poor’s sales rose about 15 percent to $12.7 billion largely because of fees from rating structured financial products, according to the attorney general’s office.
“New Jersey and other states have filed meritless civil lawsuits against S&P challenging our ratings on structured finance securities,” Edward Sweeney, a spokesman for New York-based Standard & Poor’s, said in an e-mail. “The claims are simply not true.” He said the company will fight the case.
The case is Hoffman v. McGraw Hill Financial Inc., Superior Court of New Jersey, Chancery Division (Newark, New Jersey).