This article first appeared in the St. Louis Beacon, Feb. 5, 2013 - Missouri Attorney General Chris Koster and Secretary of State Jason Kander, both Democrats, are participating in a national lawsuit that seeks “to hold Standard and Poor’s accountable for alleged misconduct involving the company’s rating of mortgage-backed securities at the heart of the nation’s financial crisis.”
The suit is seeking hundreds of millions of dollars in penalties and restitution.
Koster filed Missouri’s legal complaint this morning in Jackson County Circuit Court. The suit alleges that Standard and Poor’s was “influenced by its desire to earn lucrative fees from its investment bank clients,” so the investment ratings firm “knowingly assigned inflated credit ratings to toxic assets packaged and sold by the Wall Street investment banks.”
According to the complaint, the two officials say, “S&P adjusted its analytical models for rating residential mortgage-backed securities and collateral debt obligations to allow it to assign as many AAA ratings as possible, allowing it to earn additional revenue from its investment banking clients.”
The ratings are considered an important factor because “mortgage-backed securities were at the center of the financial crisis.” Such securities get their value from the monthly payments that homeowners make on their mortgages.
“This alleged misconduct began as early as 2001, became particularly acute between 2004 and 2007, and continued into at least 2011,” the two officials said in a joint statement.
“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,” Koster said in a statement. “S&P violated the trust that it purposefully cultivated with the marketplace, leading to disastrous results.”
In Missouri, the secretary of state is the chief regulator of securities sold in the state. According to the officials, a member of Kander’s staff will be named a “special assistant attorney general’’ as the lawsuit proceeds.
Missouri is among 15 states – including Illinois -- and the District of Columbia that have gone to court pursuing claims against Standard and Poor’s. The U.S. Department of Justice also filed suit Monday.
Start update: In a report on Tuesday’s PBS NewsHour, Illinois Attorney General Lisa Madigan told senior correspondent Jeffrey Brown that the $5 billion lawsuit won’t be tough to prove.
“I don’t think it’s tough to prove,” said Madigan. “There is an enormous amount of internal information that shows that they knew they weren’t being independent or objective. They knew they were rating junk, but saying it was high quality.” End update.
