That makes two – after making national headlines with her lawsuit against Wells Fargo for racially-inspired predatory lending, Illinois Attorney General Lisa Madigan has done it again, this time in a lawsuit against the parent company of Standard & Poor’s (S&P), the influential ratings agencies, for the highly-flawed bond ratings it issues in the run-up to the financial crisis.
Officially filed against McGraw-Hill, the owner of S&P, Madigan’s suit alleges that S&P ignored the increasing risks posed by mortgage-backed securities and instead gave the financial products ratings that were favorable to its investment bank client base and S&P’s profits.
Madigan said that publicly and privately, S&P engaged in practices that were polar opposites.
“Publicly, S&P took every opportunity to proclaim their analyses and ratings as independent, objective and free from its desire for revenue,” Madigan said. “Yet privately, S&P abandoned its principles and instead used every trick possible to give deals high ratings in order to retain clients and generate revenue. The mortgage-backed securities that helped our market soar – and ultimately crash – could not have been purchased by most investors without S&P’s seal of approval.”
The lawsuit cites pre-financial crisis internal emails and conversations among S&P employees as evidence that the company misrepresented its ratings system. One exchange involved an online conversation between two employees in which one commented on how an investment “could be structured by cows and we would rate it.”
The lawsuit also cites congressional testimony by a former managing director of S&P, who said that “profits were running the show” at S&P – meaning that ratings to drive profit, not the integrity of the firm, were the company’s focus.
Along with Madigan’s suit against Wells Fargo, the S&P investigation is the latest in a series of financially-themed probes launched by the Illinois Attorney General. In December 2011, Madigan and the U.S. Department of Justice reached a $335 million settlement with Countrywide, a subsidiary of Bank of America, for discriminatory lending based on race, and that was after an earlier lawsuit against Countrywide that resulted in a nationwide $8.7 billion settlement in 2008.