The State of New Jersey and the state Division of Law in New Jersey have filed suit against Standard & Poor's for misleading consumers with regard to its ratings of financial products, acting Attorney General John J. Hoffman announced today.
The suit alleges the company deceived consumers about its ratings and used outdate analytical models to maximize its market share and profits, according to a release.
The suit was filed in the New Jersey Superior Court in Essex County and claims the company was deceptive as to the independence and objectivity of its ratings.
Division of Law Director Christopher S. Porrino said in a statement ample evidence demonstrates that such claims were false. It charges S&P, as well as parent company McGraw Hill Financial Inc., with several violations of the New Jersey Consumer Fraud Act.
That law makes it illegal, among other things, to deceive by misrepresentation or omission with the intent that others rely on that deception in making purchasing decisions. New Jersey says S&P's securities ratings were "driven by the company's own revenue goals" and favoritism toward the firms issuing those securities. Those firms pay S&P fees related to the ratings.
Today's announcement specifically mentions structured finance securities, which are valued based on revenue flowing from underlying assets. A residential mortgage-backed security falls into the structured finance category and is secured by a pool of residential mortgages, often sub-prime, that are pooled to create the product.
According to the announcement, the state is represented in the Standard & Poor's matter by Assistant Attorney General Brian McDonough, Deputy Attorney General Edward Mullins, and Special Deputy Attorneys General Steven Scutti and Krima Shah, all assigned to the Division of Law's Affirmative Civil Enforcement Practice Group.
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