Moody's Corp., the parent of Moody's Investors Service, another rating agency, closed down nearly 11 percent. The two companies' stocks suffered the biggest percentage drops in the S&P 500 index, which finished down slightly more than 1 percent.
S&P, Moody's, and Fitch Ratings, the third major rating agency, have been blamed for helping fuel the financial crisis by assigning AAA ratings to trillions of dollars in risky securities backed by subprime mortgages. The securities collapsed once the housing bubble burst and home-loan delinquencies soared. Major U.S. banks absorbed tens of billions in losses.
The rating agencies are important arbiters of the creditworthiness of securities traded around the world. The grades they assign can affect a company's ability to raise or borrow money and how much investors will pay for securities it issues.
The securities in the anticipated federal lawsuit are collateralized debt offerings. CDOs are investment vehicles that contain many underlying mortgage loans.
A CDO generally gains in value if borrowers repay. But a wave of defaults can cause them to tumble in value. Soured CDOs contributed to, and intensified, the financial crisis.
Critics have long argued that rating agencies have an inherent conflict of interest: They're paid by the same companies whose products and credit they rate. The agencies have been accused of issuing unduly high ratings before the crisis, in part because of pressure from banks they desired as clients.