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The lawsuit was filed in February after S&P was accused by the government of manipulating and inflating its credit ratings to boost profits, consequently misleading investors and concealing credit risks and ultimately contributing to the financial crisis of 2008, Reuters reports. Back in February S&P, which is a unit of McGraw Hill, hired top defence lawyer John Keker of San Francisco-based Keker & Van Nest LLP to represent it in the initial court proceedings. This was at the recommendation of New York lawyer Floyd Abrams, a constitutional law expert from law firm Cahill Gordon & Reindel who also represents S&P.
Failure to downgrade ratings
Over $2.8 trillion of RMBS and almost $1.2 trillion of CDOs were allegedly rated by S&P between September 2004 and October 2007. The ratings company are also said to have failed to downgrade ratings for collateralised debt obligations in spite of backing from struggling residential mortgage-backed securities.
Backing the Department of Justice’s case to support its allegations against S&P US District Judge David Carter said there was ‘comprehensive detail’ to support the government’s claims. He denied the appeal to drop the case. After the ruling in Santa Ana, California, the government may now proceed with its lawsuit, which is filed under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, in pursuit of penalties for losses that affected federally insured financial institutions.
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