U.S. Justice Department Joins S.E.C. Investigation of Standard & Poor’s and Other Credit-Rating Firms
The U.S. Justice Department has joined forces with the Securities and Exchange Commission (SEC) in a probe of Standard & Poor’s (S&P) and rival credit-rating agencies and their role in creating mortgage-bond deals that contributed to the 2008 financial crisis, the Wall Street Journal reports.
Government officials, trying to allay concerns that the probe is some sort of tit-for-tat retaliation for S&P’s August 5 downgrade of long-term U.S. government debt, stressed that the investigation began before the downgrade occurred.
The SEC has been investigating S&P for months, as well as Moody’s Investors Service, a rival rating agency, regarding multiple mortgage-bond deals. Now attorneys from the Justice Department have joined the SEC probe, looking into whether S&P’s mortgage-bond rating process contains any improprieties.
According to a statement from S&P, the company “has received several requests from different government agencies over the last few years regarding U.S. mortgage-related securities.” The statement adds that the firm has “cooperated and will continue to cooperate with these requests.”
As for Moody’s, a former employee told the Journal that he was contacted by Justice Department officials three times over the past year and a half. He was interviewed for an entire day last year; earlier this year investigators asked him for the names of Moody’s employees in charge of mortgage-backed securities. The former employee said that the Justice Department stressed that it was a civil, not a criminal, investigation.
According to the Journal, investigators were also interested in learning whether the firm’s managers encouraged securities analysts to give preferential treatment to bankers in a bid to maximize profits at the expense of ratings quality.
Additionally, the SEC will examine S&P’s downgrade process. The U.S. Treasury Department claims the downgrade was unwarranted and that S&P made a $2 trillion mistake when calculating the federal deficit over the next ten years.
Om August 5, S&P downgraded U.S. long-term debt from ‘AAA’ to ‘AA+.’
The downgrade marked the first time in U.S. history that the nation’s long-term debt was rated anything but ‘AAA,’ a designation reserved for the world’s safest investments.
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