S&P May Be Target of Federal Probe

Foreclosed home
Source: Thinkstock
Critics of the behavior of the various ratings agencies may be getting some high-powered company. According to a report in The Wall Street Journal, the U.S. Department of Justice and some state prosecutors are preparing to file civil charges against Standard & Poor’s Ratings Services in connection with the firm’s ratings of mortgage bonds prior to the financial meltdown of 2008. S&P is owned by The McGraw-Hill Cos. (NYSE: MHP).

The other major ratings services, Moody’s Corp. (NYSE: MCO) and Fitch Ratings were not named as possible investigation targets according to the WSJ report.

All three of the agencies have been severely criticized for their starry-eyed ratings of subprime mortgage bonds just before the real estate collapse. The commission that studied the collapse named the ratings agencies among the “key enablers of the financial meltdown.”

At issue is whether or not S&P and possibly the other agencies broke securities laws or did they just miss all the signals. The former is big trouble; the latter is a big embarrassment.

For McGraw-Hill, which recently sold its education division so it could focus on its financial services businesses including S&P, a blizzard of civil lawsuits is not what the company needs right now. Shares are down about 3% in mid -afternoon trading, at $56.66 in a 52-week range of $42.02 to $58.62. Shares traded within $0.25 of the high earlier today.

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