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February 5, 2013

Analysis: Justice suit challenges rating agencies

Word that the Justice Department is suing Standard & Poor’s over its rosy ratings of risky mortgage bonds may seem like a locking the barn after the horse is gone.

The lawsuit, which S&P said Monday that it expected, could revive scrutiny of a business model in which the people who are issuing bonds pay ratings agencies for a rating. The post-crisis criticism of S&P, and rivals Moody’s Investor Service and Fitch Ratings, was that they bent over backwards to give AAA or other investment-grade ratings to shoddy securities in order to rack up the fees.

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The SEC released its first take on such a study just before Christmas — without even a press release, said Dennis Kelleher, a corporate lawyer turned consumer advocate who’s president of Better Markets, a non-profit lobbying for financial reform. And the staff study doesn’t take a stand on whether to scrap issuer-pays.

“It leaves SEC regulation of the agencies in the same limbo it has been,” Kelleher said.

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Read full USA Today article here

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