California has filed a lawsuit against Standard and Poor’s Tuesday, alleging that the company inflated its ratings and caused California investors to lose billions of dollars.
The lawsuit, filed by State Attorney General Kamala Harris, coincides with similar lawsuits filed Monday by the U.S. government and 12 other states against the company. Standard and Poor’s is well-known for its stock market index, the S&P 500.
“When the housing bubble burst, S&P’s house of cards collapsed and California paid the price—in billions,” Harris wrote in a statement.
Each suit is similar in that they all allege that S&P inflated their ratings – a number that is supposedly objective. By misrepresenting their ratings, the suit alleges, S&P was able to gain market share and increase their profits – a violation of the False Claims Act, among other state and federal laws.
The conduct of the company contributed to the country’s financial crisis of 2007, Harris and the Department of Justice allege.
S&P claims that their analysts provided good-faith ratings.
“S&P deeply regrets that our CDO ratings failed to fully anticipate the rapidly deteriorating conditions in the U.S. mortgage market during that tumultuous time. However, we did take extensive rating actions in 2007 – ahead of other ratings agencies – on the residential mortgage-backed securities (“RMBS”) which were included in these CDOs,” the company wrote in a statement released Monday.
Harris’ office notes that California’s lawsuit against S&P claims triple damages, thanks to the False Claims Act. If S&P is convicted, the company would be responsible for the amount of losses times three.
Both the California Public Employees Retirement System and the California State Teachers Retirement System loss about $1 billion as a result of the market collapse.
“S&P must be held accountable for its conduct that contributed to one of our country’s worst financial crises,” Harris wrote.