Missouri sues S&P over mortgage bonds

2013-02-05T10:53:00Z 2013-02-05T18:13:04Z Missouri sues S&P over mortgage bondsBy Jim Gallagher jgallagher@post-dispatch.com 314-340-8390 stltoday.com

The state of Missouri today joined the crowd of states suing Standard & Poors for giving high ratings to mortgage bonds that later crashed.

Attorney General Chris Koster said the big rating agency "knowingly assigned inflated ratings" to the bonds in order to earn "lucrative fees" from the investment banks issuing the bonds.

"Missourians trusted S&P’s supposedly independent investment analysis, but it appears that trust was betrayed to protect S&P’s profits, ” said Missouri Secretary of State Jason Kander, the state's main securities regulator.

The U.S. Justice Department filed a similar suit Tuesday, though S&P announced on Monday that it had been told the government planned to file a suit. S&P already faces suits from at least 14 states, including Illinois, and the District of Columbia.

S&P didn't immediately respond to a request for comment on the Missouri suit.  Responding to the Justice Department suit, S&P said that "virtually everyone" failed to predict the housing market collapse, and that S&P's ratings were similar to those given by other rating agencies on the same bonds.

The company noted that it began downgrading bonds in 2006 as problems became apparent. "With 20/20 hindsight, these strong actions proved insufficient – but they demonstrate that the DOJ would be wrong in contending that S&P ratings were motivated by commercial considerations and not issued in good faith."

The state's suit, filed in state court Kansas City, requests fines and restitution for the banks and others who bought the bonds.  In Washington, U.S. Attorney General Eric Holder said he may demand $5 billion for S&P.

The state says the misconduct began in 2001, became acute in 2004 and 2007 and lasted into 2011.  “We believe that countless investors and market participants, including state regulators, were misled by S&P’s promise that its analysis was independent and objective. S&P violated the trust that it purposefully cultivated with the marketplace, leading to disastrous results,” Attorney General Koster said.

Defaults on mortgages, and the collapsing price of mortgage bonds, were major factors in bringing on the financial crash of 2008 and the Great Recession.

EDITOR'S NOTE: This story was updated at 5:50 p.m. to correct the day that the U.S. government filed its lawsuit.

Jim Gallagher is a reporter at the Post-Dispatch

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