S&P has acknowledged that its ratings were wrong, but insists it did not knowingly issue triple-A ratings to junk securities at a time when few on Wall Street or in the government saw the dangers posed by subprime lending. The DOJ suit "would be entirely without factual or legal merit," said S&P, in a statement.
"Regrettably, the breadth, depth, and effect of what ultimately occurred were greater than we – and virtually everyone else – predicted," the statement said.
And because it alone was singled out among other rating agencies that awarded sterling ratings to mortgage-backed securities, including Moody’s Corp. and Fitch Ratings, S&P has suggested the DOJ is retaliating for S&P’s downgrade of the US credit rating in 2011.
Nonetheless, the suit marks an aggressive new tack by the federal government.
“Part of what’s going on is closure about the financial crisis,” says Jeffrey Manns, associate professor at George Washington University Law School in Washington.
Indeed, the suit is the government’s attempt to hold Wall Street accountable for wrongdoing that led to the financial crisis, something the current administration has been accused of failing to do.
But will the DOJ’s civil suit amount to more than mere finger-pointing or a slap on the wrist? Will Wall Street take notice?
“It could have a very significant effect on Wall Street,” says Mr. Manns. “The government is taking a more aggressive posture in seeking accountability, so it’s certainly a warning to rating agencies and Wall Street as a whole that the government is going to hold actors accountable for wrongdoing.”