Madigan filed her lawsuit in Cook County Circuit Court, alleging that Standard & Poor’s, or S&P, compromised its independence as a ratings agency by doling out high ratings to unworthy, risky investments as a corporate strategy to increase its revenue and market share.
“Publically, S&P took every opportunity to proclaim their analyses and ratings as independent, objective and free from its desire for revenue,” Madigan said. “Yet privately, S&P abandoned its principles and instead used every trick possible to give deals high ratings in order to retain clients and generate revenue.
The Attorney General’s lawsuit cites numerous internal emails and conversations among S&P employees in the run up to the housing market’s crash that demonstrate the company misrepresented its ratings as objective and independent.
Madigan said investors relied on S&P ratings because they were historically rooted in the agency’s purported independence and objectivity. But, the Attorney General’s lawsuit cites congressional testimony by a former managing director of S&P who revealed that “profits were running the show,” with AAA ratings being assigned to risky investments to help drive profit margins for their clients.
S&P, a subsidiary of McGraw-Hill Companies, is one of the nation’s largest credit ratings agencies responsible for independently rating risk on behalf of clients and investors. Mortgage-backed securities are financial products made up of a pool of mortgages that are bundled together and sold as a security. The assets are backed by residential mortgages, including subprime mortgages. It was the misrepresentation of the true value of these risky mortgage pools that helped the housing market skyrocket and ultimately led to its collapse in 2008.
The lawsuit is part of Attorney General Madigan’s continuing work to hold lenders accountable for their unlawful financial misconduct, and to provide relief and assistance to Illinois families struggling to save their homes.
Most recently, in December 2011, Madigan and the U.S. Department of Justice reached a $335 million settlement with Countrywide, a subsidiary of Bank of America, for discriminating against thousands of Illinois borrowers of color. The Attorney General is litigating a similar lawsuit against Wells Fargo alleging widespread discrimination against African American and Latino borrowers.