S&P Analysts to Be Questioned by U.S. in Ratings Fraud Lawsuit

As many as nine current and former employees of McGraw Hill Financial Inc.’s Standard & Poor’s unit may be questioned by U.S. Justice Department lawyers as part of a fraud lawsuit against the ratings company.

The government has scheduled depositions of six current collateralized-debt obligation analysts, according to a status report filed yesterday in federal court in Santa Ana, California. The U.S. is also scheduling depositions of another employee and two ex-employees, according to the joint filing. New York-based S&P hasn’t scheduled its own depositions.

“Depositions of the financial institutions and regulators from which it seeks discovery must necessarily follow S&P’s receipt and review of what we expect to be very significant document productions,” according to the filing.

The Justice Department last year accused S&P of lying about its ratings being free of conflicts of interest and may seek as much as $5 billion civil penalties. The government alleged in its Feb. 4 complaint that S&P knowingly downplayed the risk on securities before the credit crisis to win business from investment banks seeking the highest possible ratings to help sell the instruments.

S&P has said it will seek evidence that the lawsuit was political retribution by the government because it was the only ratings company to downgrade U.S. debt in 2011.

The company is scheduled to seek to compel the U.S. to hand over internal documents about its decision to sue S&P and not Moody’s Corp., which S&P says gave the same ratings as it did for residential mortgage-backed securities and CDOs backed by those securities. A hearing on S&P’s request is scheduled for March.

The case is U.S. v. McGraw-Hill Cos., 13-cv-00779, U.S. District Court, Central District of California (Santa Ana).

Before it's here, it's on the Bloomberg Terminal.