Legal Research Paper

Legal Research Paper

Introduction

The research paper analyzes the lawsuit against Standard & Poor's (S&P) for falsely rating some bonds for financial gains. S&P is one of the largest financial services company in the United States and a part of The McGraw-Hill Companies. This group publishes analysis and financial research on bonds and stocks. S&P is well for its U.S. based S&P 500, India's S%P CNX Nifty, Italian S&P/MIB, Canadian S&P/TSX, and the Australian S&P/ASZ200 stock market indices. Along with Fitch Ratings and Moody's Investor Services, S&P is included as one of the Big three credit-rating companies (Mattingly, 2013).

Issues began to rise when S&P gave AAA rating to some of the riskiest companies. Although AAA is considered the best rating, giving this to companies that did not deserve it showed that something was going on between these companies and S&P must have received a significant amount to rate these organizations or it must have did it on its own in order to raise money. In this way investors were lured to purchase AAA securities because they were implied to be low-risk. This meant that the securities would later be unsalable and sold at low prices which would result in huge gains for S&P. for example CDO's issued by Credit Suisse Group on CDS's worth of $340.7 million suffered losses of around $125 million. After the loss, S&P downgraded the company leaving a lot of suspicion that this was done on purpose to allow the company to gain from the trade of CDO's (Kersch, 2003).

The effects these rating agencies had on the US economy in 2008 was so vast that it led to the global financial crises. This alone shows the consequences of wrongly rating these companies and the impact it has on the economy. Any action on S&P would result in a likely action against Moody's since it is the second biggest of the three. This was reflected in its share prices as they fell sharply following the filing of the lawsuit against S&P.

Discussion

Since early 2007, Standard and Poor's started advising its analysts whose was to rate mortgage bonds to use the phrase “privileged and confidential” while communicating to each other on emails. This began the suspicion that something was wrong in the company due to which it had to take these measures. Along with this, employees were told not to keep any written information and avoid communicating with each other on emails. All this was happening because they knew that the government would investigate their business and the best way to derive information would be to check their mails. Even during meetings, employees were not allowed to keep any written information and those who did not follow the instructions were made to dispose everything (Lopez, Rudegeair & Goldstein, 2013).

The same situation happened in 2005 soon before the melting of the housing market. During this time, the managers attended a meeting at a hotel instead of the office to discuss ways by which they could increase their fees from Wall ...