The U.S. Justice Department this week filed civil charges against S&P, accusing the rating agency of refusing to warn investors that the housing market was collapsing in 2006 because it would be bad for business. The department is seeking $5 billion in penalties.
S&P, a unit of New York-based McGraw-Hill Cos., called the lawsuit meritless and said, "Claims that we deliberately kept ratings high when we knew they should be lower are simply not true."
The federal Financial Crisis Inquiry Commission in concluded in its final report two years ago that the 2007-2008 market upheaval, followed by national recession, came from a decade of "pervasive permissiveness" by regulators with expanding debt and high-risk behavior by home buyers and owners, mortgage lenders, investors and financial institutions that repackaged and resold that debt.
Its root was mortgages issued to people who could not afford them. The three ratings agencies, paid from $250,000 to $500,000 to grade each collateralized debt obligation, "were essential cogs in the wheel of financial destruction," the report said.
That secondary market was rocked as the housing boom ended, more borrowers defaulted and thousands of AAA-rated securities based on those debt obligations tumbled.
AP Business Writer Bree Fowler in New York contributed to this report.