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S&P Faces Inquiry Over Mortgage Security Ratings

Filed by KOSU News in Business.
August 18, 2011

The Justice Department is investigating whether Standard & Poor’s improperly boosted ratings on mortgage securities that later turned out to be toxic, helping trigger the worst financial crisis in decades.

NPR has confirmed the investigation, first reported Wednesday by The New York Times.

A source familiar with the probe told NPR on Thursday that the Department of Justice has an open civil investigation of S&P that began before the credit rating agency’s controversial decision earlier this month to downgrade U.S. sovereign debt. The source could not say whether the two other major ratings agencies – Moody’s and Fitch – were under similar scrutiny.

The Times said the Securities and Exchange Commission also has been looking into possible wrongdoing at S&P, citing a person interviewed on that matter. Representatives of the Justice Department and the SEC declined to confirm any investigations, the newspaper said.

S&P, Moody’s and Fitch have reaped profits from securities firms whose mortgage bonds they rated, but the agencies have always maintained that their analysts act independently from business concerns. In the wake of the financial crisis, that claim could face renewed scrutiny if the government uncovers evidence that managers leaned on analysts to burnish the ratings.

Ed Sweeney, a spokesman for S&P, said in an email to the Times: “S&P has received several requests from different government agencies over the last few years. We continue to cooperate with these requests. We do not prevent such agencies from speaking with current or former employees.”

The Justice Department investigation began before Standard & Poor’s cut the United States’ AAA credit rating earlier this month, the first-ever downgrade on U.S. debt. Some government officials have since questioned the agency’s secretive process, its credibility and the competence of its analysts, claiming to have found an error in its debt calculations.

NPR’s Carrie Johnson and The Associated Press contributed to this report. [Copyright 2011 National Public Radio]

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