Curious allegations made against Standard & Poor’s

“Oh, the poor suckers at Citigroup Inc. and Bank of America Corp., fooled about the stench of their own garbage by those sneaky credit raters at Standard & Poor’s,” Jonathan Weil began in a bloomberg.com article posted on Wednesday.

Weil continued, “The U.S. Justice Department made some peculiar allegations in its lawsuit this week against S&P and its parent, McGraw-Hill Cos. According to the government, Citigroup was defrauded by S&P credit ratings on subprime mortgage bonds that Citigroup itself created and sold. Bank of America, too, allegedly was defrauded by S&P in the same way. If this doesn’t make sense, that’s the point. The notion is far-fetched. No wonder S&P wouldn’t agree to a settlement and told the government to see it in court. Here’s the gist. Near the end of its 119-page complaint, the Justice Department listed about two-dozen collateralized-debt obligations issued in 2007 as examples where S&P allegedly defrauded banks and credit unions. It was important that the Justice Department be able to identify such lenders as investors, because it’s suing S&P under a 1989 statute that covers frauds against federally insured financial institutions.” Read the full article here. | Raymond Matt, CFP, CLU, TEP, CHS

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