You can rate the chances the Justice Department will sue Standard & Poor’s over its mortgage bond ratings AAA, sources tell The Post.
Federal regulators, along with as many as a dozen state attorneys general, are expected to sue the ratings agency for allegedly giving top grades to baskets of mortgage bonds even though the paper inside those bundles was toxic, subprime loans.
The suit could be announced as soon as this morning, sources said.
New York Attorney General Eric Schneiderman, not among the group, is said to be weighing his own action against S&P.
McGraw-Hill, parent of S&P, admitted yesterday it expects its ratings unit to get slapped with civil charges.
As word of the possible suit swept through Wall Street, investors ran for the exits, sending McGraw-Hill shares down 13.8 percent — their steepest drop since 1987. The shares closed at $50.30 and are now down 8 percent this year.
So far, S&P is the only ratings agency being targeted in this current probe, a source noted.
The lawsuit will be based on a 1989 statute enacted to stabilize and reform the savings and loan industry, according to one report.
“It’s a new use of this statute,” Claire Hill, a University of Minnesota law professor, told Bloomberg. “This is not a line to my knowledge that has been taken before.”
S&P thinks a Justice Department suit is out of line.
“A DOJ lawsuit would be entirely without factual legal merit,” an S&P spokeswoman said in a lengthy rebuttal to the Justice Department’s planned charges.
S&P officials also blasted the notion that it should be held responsible for granting pristine triple-A ratings on thousands of securities that turned out to be toxic junk, in some cases.
People familiar with the matter also said that the ratings firm is bristling at the fact that it’s being singled out by regulators and state AGs.
A probe into the ratings firm’s process of deriving its ratings on complex mortgage bonds began about three years ago.
All three ratings agencies — including Moody’s and Fitch — have been slimed by lawmakers and others for helping fuel the financial crisis by giving top ratings to securities backed by risky subprime mortgages.
S&P officials believe that the government, with the expected charges, is doing nothing more than doling out payback after the ratings firm cut the US’s pristine sovereign debt rating from to AA+ from triple-A back in August 2011.
The downgrade threatened to lower the country’s economic wherewithal on the world stage.
S&P’s lawyers at Cahill Gordon & Reindel are expected to argue that sanctioning a ratings agency for issuing its opinion would be a violation of its First Amendment rights.
Some of the Justice Department’s charges may center on allegations that the firm may have breached its own internal ethics by offering high ratings to issuers of funky debt, who paid the ratings firm, in exchange for business. The DOJ declined to comment.