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Report: Standard & Poor's is Under Investigation

The Standard and Poor's building in New York, August 2, 2011

The Standard and Poor's building in New York, August 2, 2011

A major American newspaper says the U.S. is investigating the financial services company that downgraded the U.S. credit rating for its faulty rating of mortgage securities that played a major role in the country's 2008 recession.

The New York Times reported that the Justice Department is looking at dozens of securities that Standard & Poor's rated as safe investments that later turned out to include mortgages that were not repaid by borrowers. The failure of the investments has been partly blamed for the sharp downturn in the U.S. economy three years ago, a recession from which it is still struggling to recover.

The newspaper said the investigation began before Standard & Poor's recently cut the U.S. credit rating from AAA to AA-plus. The credit downgrade was an indication the firm's analysts viewed the U.S. as a slightly riskier bet to repay its debts in the aftermath of a contentious political debate over raising the country's borrowing limit. The two other major credit rating firms, Moody's Investor Services and Fitch Ratings, have continued to give the U.S. their top ratings.

Some lawmakers in the U.S. have grown increasingly wary about the role of the financial services firms in setting credit ratings on the safety of investing in government and corporate bonds. With the unprecedented U.S. credit downgrade, some government officials have been looking for ways to lessen the impact of such ratings, which investors rely on to decide which securities to buy.

The Times
reported that Justice Department investigators have been looking at whether some S & P analysts wanted to set lower ratings on the mortgage securities before the recession started, but were overruled by the company's business managers. Companies selling securities pay the ratings agencies to provide a rating, and the newspaper said that some security sellers shopped around among the ratings agencies to make sure they would receive a favorable rating before agreeing to do business with them.

Standard & Poor's said it is cooperating with all investigators looking at its operations.