The Justice Department is investigating whether the credit ratings agency Standard & Poor’s improperly rated dozens of mortgage securities in the years before the financial crisis, the New York Times reported.
According to sources who spoke with the Times after being questioned by the government, the DOJ has been asking about whether business managers ever overruled company analysts who wanted to lower ratings on mortgage bonds.
If the department filed a case alleging such incidents, it would certainly damage the company’s claim that its analysts act independently. The case would likely be a civil lawsuit, according to people interviewed by the Times.
S&P, the nations’ largest credit ratings agency, faced sharp public criticism after the financial crisis for reaping record profits while handing out high ratings to bundles of troubled mortgage loans. And the agency’s cut to the U.S.’s AAA credit rating earlier this month has refocused lawmakers and the public on its ratings practices, particularly after an error was found in the company’s debt projections.
But the department’s investigation began before the downgrade, according to the Times.
It was unclear if the investigation also involves other ratings agencies.
The Securities and Exchange Commission has also been investigating S&P for possible wrongdoing, according to the Times, and may be looking at the other two major agencies, Moody’s and Fitch Ratings.
People with knowledge of the investigation also told the Times that investigators had mentioned several individuals at S&P – including co-director for CDO ratings David Tesher and former executive Richard Gugliada – but it was unclear whether anyone would be named in a potential case.
In an email to the Times, S&P spokesman Ed Sweeney said, “S&P has received several requests from different government agencies over the last few years. We continue to cooperate with these requests. We do not prevent such agencies from speaking with current or former employees.”
