Neil Barofsky on S&P’s $5 Billion Penalty

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In the years leading up to the 2008 financial meltdown, the Department of Justice says that the credit rating agency Standard & Poor’s inflated credit ratings, which led to huge losses among federally insured financial institutions. Attorney General Eric Holder announced today that the US is seeking as much as $5 billion in penalties from S&P and its owner McGraw-Hill. Bloomberg News reports:

Holder, flanked today in Washington by state attorneys general who also filed suit against the New York-based company, said S&P made false representations, concealed facts and manipulated ratings criteria and credit models for profit.

“This alleged conduct is egregious — and goes to the very heart of the recent financial crisis,” Holder said.

S&P rated more than $2.8 trillion of residential mortgage-backed securities and about $1.2 trillion of collateralized-debt obligations from September 2004 through October 2007, according to the complaint. S&P downplayed the risks on portions of the securities to gain more business from the investment banks that issued them, the US said.

Holder called the suit “an important step forward in our ongoing efforts to investigate and punish the conduct that is believed to have contributed to the worst economic crisis in recent history.” So far, that punishment has come in the form of fines, lawsuits and settlements. Not one executive at the institutions responsible for the financial crisis has gone to jail.

This morning, Neil Barofsky, the former special inspector for the US Treasury’s Troubled Asset Relief Program (TARP), discussed the complaint on Bloomberg TV, calling the Standard & Poor’s operation an “entirely corrupt business model.” If he were still a federal prosecutor, Barofsky said, he would “seriously be looking at” a criminal indictment not only against S&P, but against individuals working there as well. “If the allegations in this complaint are true, they support mail fraud, wire fraud [and] securities fraud,” Barofsky said.

Watch Barofsky’s interview on Bloomberg TV.


Last fall, Barofsky appeared on Moyers & Company to talk about banking reform and what he thinks needs to be done to rein in Wall Street.

Watch Bill’s full interview with Barofsky below.


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