The US Justice department last week announced $ 1.5 billion settlement with S&P for mis-rating mortgages in the lead-up to the financial crisis. As per the suit, it was stated that S&P inflated credit ratings for CDOs thereby understating their risks. At the time, S&P claimed that its ratings were independent, objective, and not influenced by the company’s relationship with the issuers who hired S&P to rate the securities in question.
S&P in its earlier request to dismiss the case argued that the government can’t base its fraud claims on S&P’s assertions that its ratings were independent, objective and free of conflicts of interest because U.S. courts have found that such vague and generalized statements are the kind of “puffery” that a reasonable investor wouldn’t rely on.
Basically do not go by the fine-print we place below our advertisement.
The Justice Department lawsuit accused S&P of defrauding the banks who bought collateralized-debt obligations. But many of those banks -- the named victims in the complaint -- were also issuers of these CDOs. The banks defrauded themselves, with the help of S&P.The banks wanted to buy things with AAA ratings and high yields. To do that, the theory goes, they convinced S&P to give AAA ratings to high-yielding risky things. And then they sold those things to themselves, and to other investors who wanted high-yielding risky things but who were constrained by law, regulation, mandates, etc. to require high ratings.
Crazy world! - you can read more about it here
S&P in its earlier request to dismiss the case argued that the government can’t base its fraud claims on S&P’s assertions that its ratings were independent, objective and free of conflicts of interest because U.S. courts have found that such vague and generalized statements are the kind of “puffery” that a reasonable investor wouldn’t rely on.
Basically do not go by the fine-print we place below our advertisement.
The Justice Department lawsuit accused S&P of defrauding the banks who bought collateralized-debt obligations. But many of those banks -- the named victims in the complaint -- were also issuers of these CDOs. The banks defrauded themselves, with the help of S&P.The banks wanted to buy things with AAA ratings and high yields. To do that, the theory goes, they convinced S&P to give AAA ratings to high-yielding risky things. And then they sold those things to themselves, and to other investors who wanted high-yielding risky things but who were constrained by law, regulation, mandates, etc. to require high ratings.
Crazy world! - you can read more about it here