On the heels of a federal lawsuit against Standard & Poor’s Ratings Services, Massachusetts Attorney General Martha Coakley said Tuesday that her staff also is looking into allegations the New York credit rating agency helped fuel the country’s mortgage meltdown and financial crisis.
The US Department of Justice filed a civil suit Monday against Standard & Poor’s, saying the firm “engaged in a scheme to defraud investors” through inflated ratings of mortgage products that later turned out to be bad.
Coakley said her office is carrying out a “related investigation” and is “closely monitoring” the suit filed by the Department of Justice and other state attorneys general.
“These are serious allegations and, as our previous action around mortgage-backed securities has shown, our office remains committed to holding accountable those who helped trigger the financial crisis and to preventing further harm,” she said.
Coakley’s office would not provide details about what it is doing except to say the office is focusing on more recent conduct by Standard & Poor’s.
The federal Justice Department is demanding Standard & Poor’s pay at least $5 billion in penalties, saying investors lost billions of dollars on mortgage-related securities whose financial risks were misrepresented by the agency between 2004 and 2007.
Federal officials filed the suit in California, which was home to the now-shuttered Western Federal Corporate Credit Union, the country’s largest corporate credit union. It failed after “suffering massive losses” on mortgage-related securities rated by S&P, officials said.
The suit says Standard & Poor’s falsely said it was objective when the agency was inflating ratings to increase business.
Several attorneys general, including those from California, Connecticut, and Mississippi, have or will file similar lawsuits, the Department of Justice said.
“We allege that from at least 2004 to 2007, S&P lied about its objectivity and independence,’’ said Acting Associate Attorney General Tony West in a statement. “Internal S&P documents make clear that the company regularly would ‘tweak,’ ‘bend,’ delay updating, or otherwise adjust its ratings models to suit the company’s business needs.”
Standard & Poor’s, a unit of New York-based McGraw-Hill Cos., called the lawsuit ‘‘meritless’’ and said e-mails used to substantiate claims in it were taken out of context.
“We will vigorously defend S&P against these unwarranted claims,” officials said in a statement. “Unfortunately, S&P, like everyone else, did not predict the speed and severity of the coming crisis and how credit quality would ultimately be affected.”Jenifer B. McKim can be reached at firstname.lastname@example.org. Follow her on Twitter @jbmckim.