Justice planning charges against S&P for financial crisis ratings

{mosads}Credit raters have faced intense scrutiny from policymakers for their actions leading up to the financial crisis, as they assigned top-shelf credit ratings to complex mortgage products that ultimately proved far riskier. A 2011 report from the Senate Permanent Subcommittee on Investigations accused raters of handing out AAA ratings in order to secure “lucrative fees” from Wall Street firms. 

Credit raters currently operate under an “issuer pay” model, wherein issuers pay raters to provide a rating to their financial product. Critics have argued this method creates a conflict of interest for credit raters, and implicit pressure to provide higher ratings.

The Senate report found that more than 90 percent of AAA ratings given to mortgage-backed securities in 2006 and 2007 — as the subprime mortgage crisis reached its peak — ultimately were downgraded to junk status.

Fellow raters Moody’s Investors Service and Fitch Ratings have been similarly criticized, but no similar cases against them have been reported. S&P became the first credit rater to downgrade the United States’s credit rating

According to the Journal, the government’s case will challenge the model S&P used to provide ratings to mortgage bonds. Raters, which have faced a slew of lawsuits since the financial meltdown, have argued that their methods are protected under the First Amendment.

The Justice Department declined to comment.

This post updated at 3:47 pm.