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Attorney General Janet Mills Joins Suit Against Standard & Poor?s Ratings
February 5, 2013
AUGUSTA, ME ? Attorney General Janet T. Mills announced today that her office has filed suit against Standard & Poor?s (S&P) alleging that the company engaged in unfair and deceptive business practices in the rating of certain complex finance securities that were at the heart of the nation?s financial crisis.
The complaint, filed today in Kennebec County Superior Court, alleges that S&P operated with an inherent conflict of interest, prioritizing profits over objective ratings. It alleges that the company knew its analytical models could not adequately assess these complex securities but that it continued to rate those products anyway, often awarding them the highest and safest rating of AAA. The suit that alleges S&P?s misconduct began as early as 2001, becoming particularly acute between 2004 and 2007, and continuing into 2011.
?The mutual funds and pension funds of Maine residents, retirees and workers were adversely impacted by S&P?s misconduct,? said Mills. ?The company promised independence, competence and objectivity, but what it provided were inflated ratings engineered to drive S&P?s profits at the expense of investors.?
The bipartisan Financial Crisis Inquiry Commission concluded in its report that the financial crisis ?could not have happened? without ratings agencies such as S&P.
?S&P violated the trust that it purposefully cultivated with the marketplace leading to disastrous results,? said Mills.
The enforcement actions sought by the Maine Attorney General?s Office include: court orders to stop S&P from making misrepresentations to the public; changes in the way the company does business; civil penalties; and the disgorgement of ill-gotten profits, which may total hundreds of millions of dollars.
The other states filing suit are Arizona, Arkansas, California, Connecticut, Delaware, Idaho, Iowa, North Carolina, Missouri, Pennsylvania, Tennessee, and Washington, as well as the District of Columbia.
The complaints allege that investors and other market participants, including state regulators, relied on S&P to fulfill its promise of independence and objectivity. Instead, S&P adjusted its analytical models for rating residential mortgage-backed securities and collateral debt obligations to allow it to assign as many AAA ratings as possible, allowing it to earn additional revenue from its investment banking clients. Assessing actual credit risk was of secondary importance to revenue goals and winning new business, the complaints allege.
S&P and its chief competitor, Moody?s Investors Service, Inc., dominate the market for rating structured finance securities and are responsible for rating virtually all structured finance securities issued into the global capital markets.