Lawsuit filed against S&P’s for housing crisis
WASHINGTON—After thousands of people were out billions of dollars when the housing crisis occurred in 2008, the federal government is stepping in and filing a lawsuit against one company they claim had a “scheme to defraud” people.
The Department of Justice is accusing Standard and Poor’s of intentionally misleading investors in order to make money.
Those actions, they claim, caused the financial crisis.
During that time, homebuyers obtained mortgages that were packaged and sold into larger investments.
Financial institutions would then pay S&P’s to rate those investments before investors would purchase them.
Officials say investors purchased those securities solely based on S&P’s stamp of approval.
Now the federal government is accusing the agency of intentionally giving risky securities high ratings to make money off of investors.
U.S. Attorney General Eric Holder said, “This alleged conduct is egregious and it goes to the very heart of the recent financial crisis.”
The 128-page lawsuit could help the thousands of people who lost billions of dollars in investments they believed were safe.
The Los Angeles federal district court lawsuit alleges an S&P’s employee even joked about the looming crisis in an email.
However, S&P’s attorney denies all the allegations.
Floyd Abrams said, “There is no proof because it isn’t so.”
Abrams said analysts had no idea the market could collapse as it did.
He said, “The ratings that were issued were believed by the people who issued them and that is what the government has got to disprove.”
In addition to more than $5 billion in damages, the case is seeking reforms to prevent similar actions in the future.