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S&P penalty may reach $5 billion from U.S. suit over ratings

By Phil Mattingly and Edvard Pettersson, Bloomberg

February 5, 2013 • Reprints

Shares Fall

McGraw-Hill fell 7.6% at 2:19 p.m. in New York. It tumbled the most in 25 years yesterday when the company said it expected the lawsuit.

The Justice Department probe, code-named “Alchemy,” began in November, 2009. The suit marked the culmination of a “massive, multiyear investigation” by a team of almost two dozen lawyers, Stuart Delery, principal deputy assistant attorney general said.

Over the course of the investigation, the company turned over more than 20 million pages of documents, which included e- mail between the firm’s employees, said a person familiar with the probe, who asked for anonymity to discuss details. Those e-mails, along with questions about the models used by the company to rate bonds, have become the basis for the department’s lawsuit.

‘Tricky Time’

“It’s going to be a tricky time for rating agencies,” Fred Ponzo, a capital markets analyst at Greyspark Partners in London, said in a telephone interview. “S&P is probably just the first to face the music.”

Fitch Ratings has “no reason to believe” it faces a similar lawsuit, said Dan Noonan, a spokesman in New York for the third-largest credit-rating firm in an e-mailed statement.

S&P stripped the U.S. of its AAA credit rating on Aug. 5, 2011, and said the world’s biggest economy was no longer the safest of borrowers. The downgrade failed to dissuade investors as dollar-denominated assets have appreciated.

Holder said the downgrade of U.S. debt had “no connection” to the decision to bring the suit against the company. He didn’t rule out a settlement between the government and the company, though he said the case wouldn’t have been brought if he weren’t sure the government would win.

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financials 2975Standard & Poor 2008California 1387U.S. government 1118Barack Obama 909New York 841S&P 632Senate 610Illinois 599Regulation 344Ohio 313Department of Justice 218U.S. District Court 202Financial Industry Regulatory Authority 126Fitch Ratings 114Eric Holder 30Eric Schneiderman 23McGraw-Hill Cos. 22U.S. Senate Permanent Subcommittee on Investigations 18Financial Crisis Inquiry Commission 17Financial crisis 13Cook County 13Standard & Poor's 11Cdo 8McGraw-Hill 8Justice Department 8Richard Cordray 6Fimalac SA 5Circuit Court 5Lisa Madigan 4U.S. court in Columbus 3Consumer Financial Protection Bureau in Washington 3Mary Anne Mason 3James L. Graham 3Catherine Mathis 3Tony West 3Hearst Corp. 2Greyspark Partners 2state-federal 2Stuart Delery 2Fred Ponzo 2Dan Noonan 1

Free Newsletter Modern Trader Follow

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