McGraw Hill Financial Inc.'s Standard & Poor's division has been under scrutiny for allegations of fraud. S&P is a credit rating agency that evaluates the financial condition and stability of an entities ranging from publicly-traded companies to states such as Texas. The company then rates securities that are issued by those entities.
S&P is alleged to have knowingly issued overly generous credit ratings to residential mortgage-backed securities prior to the bursting of the housing bubble that started in 2005 and 2006. The U.S. Justice Department has filed suit against S&P, accusing it of violating securities law by downplaying credit risks of these securities in order to win more business from investment banks.
S&P is alleging that the lawsuit was filed in retaliation for its downgrade of the U.S. debt two years ago. The ratings agency has subpoenaed members of the Federal Reserve board, the Federal Reserve Bank of New York and the Federal Open Market Committee in an attempt to elicit information from these officials.
The government argues that the targeted agencies are independent regulatory bodies and that S&P must submit its requests directly to them. The Justice Department has also said that it doubts that S&P will be able to show that its allegations are substantial enough to merit the release of information that would otherwise be protected as confidential internal communication. The government stated in a recent hearing that it wants to identify the securities that will best support its fraud claim against S&P when the case goes to trial.
A company facing potential civil penalties for alleged securities law violations may wish to speak to an attorney who has experience in business and commercial law. The attorney may be able to assist the company in any subsequent enforcement investigation.
Source: Bloomberg, "S&P Subpoenas Federal Reserve Board as Part of U.S. Suit", Edvard Pettersson, October 14, 2013