WASHINGTON, Feb. 5 (Xinhua) -- The U.S. Department of Justice ( DOJ) announced Tuesday that it had filed a civil lawsuit against credit rating agency Standard & Poor (S&P) for defrauding investors in mortgage-backed securities in the years leading up to the financial crisis.
The lawsuit alleges that investors, many of them federally insured financial institutions, lost more than 5 billion U.S. dollars in connection with the failure of sophisticated financial products known as Residential Mortgage-Backed Securities (RMBS) and Collateralized Debt Obligations (CDOs) rated by S&P from March to October 2007.
"Put simply, this alleged conduct is egregious and it goes to the very heart of the recent financial crisis," said U.S. Attorney General Eric Holder.
If convicted, the credit rating agency may receive a sizable fine as the attorney general can seek civil penalties up to the amount of the losses suffered as a result of the alleged violations. In this case it means 5 billion dollars.
The complaint also alleged S&P lied about its objectivity and independence given its relationships with investment banks. In reality, S&P's desire for increased revenue and market share led it to favor the interests of these banks over investors.
In addition, the attorneys general from California, Connecticut, Delaware, the District of Columbia, Illinois, Iowa, Mississippi and many others also filed or will file civil fraud lawsuits against S&P.
The underlying federal investigation, code-named "Alchemy", that led to the filing of the complaint was initiated in November 2009 in connection with the U.S. president's Financial Fraud Enforcement Task Force. The task force enhanced coordination and cooperation among federal, state and local authorities.