S&P under threat of legal action over bond ratings

Ratings agency Standard & Poor’s could face legal action over the role it played in the financial crisis.

According to reports, staff at the Securities and Exchange Commission, the US regulator, have recommended a lawsuit be brought against S&P over a mortgage-backed security it rated in 2007.

The SEC is targeting a collaterised debit obligation – a structured asset-backed security made up of bonds and loans – called Delphinus CDO 2007-1, which S&P gave a top grade. The $1.6bn CDO was then downgraded six months later.

S&P, along with rivals Moody’s and Fitch Ratings, has come under fire from lawmakers and investors for failing to identify risks in the run-up to the financial crisis.