Mn fee | 4 c o STUART F. DELERY Principal Deputy Assistant Attorney General MAA! EW bi I- MENSAH FRIMPONG ia al. ar ie P5380) - MICHAEL S. BLUMi ARTHUR ® GOLDBERG JAMES T. NELSON BRADLEY COHEN. Ee KNEEDLER SONDRA L. MILLS. Galt Bar No. 090723) THOMAS D. ZIMPLE! United States DMA Y Justice, Civil Division P.O. Box 261, Ben Franklin Station Washington, D.C. 20 Telephone: (202) 616-0219/8474 [Mai ny Facsimile: (202) 514-8742 & (202) 616-8470 [Main] Email: james.Nelson2@usdoj.gov / Bradley. Loken @usdo} a Jennie L-Kneedler@usdoj.gov / Sondra.Mills@usdo}.gov / Thomas.D.Zimpleman@usdoj.gov ANDRE BIROTTE JR. ee States Attorne’ ee 8. CAI RDON, [A (Cal. Bar No. 135439 W. WEIDMAN ‘Cal. Bar No. 10407: KNOIED KHORSHID. ‘Cal. Bar No. 223912) RICHARD E. ROBINSON (Cal. Bar No. 690840) Assistant United States Attorneys Room 7516 Federal Building 300 North Los Angeles oe Los Angeles, California Telephone: (213) 894- §32372404/6086/0713 Facsimile: 213) 894-7819 [Main] ‘mail Attorneys for Plaintiff United States of America UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA UNITED STATES OF AMERICA, CASE ra 1 oe 0 0 7 7 9» es Plaintiff, COMPLAINT FOR CIVIL MONEY ve PENALTIES AND DEMAND FOR JURY TRIAL MCGRAW-HILL COMPANIES, INC., and STANDARD & POOR'S. FINANCIAL SERVICES LLC, Defendants. [12 US.C. § 1833a; 18 U.S.C. §§ 1341, 1343 & 1344] COMPLAINT BSc ~ COMPLAINT FOR CIVIL MONEY PENALTIES Table of Contents I. Introduction IL FIRREA, III. Jurisdiction and Venue... TV. Parties. V. Background — B. Cc. E, S&P’s Credit Rating Process for RMBS. RMBS, CDOs..... - so a The Central Role of S&P’s Credit Ratings in Purchases of RMBS and CDOs by Financial Institutions ___ 1 S&P’s NRSRO Status. 2. S&P’s Letter Grade Rating Scale. 3. S&P Knew the Importance of its Ratings to Financial Institutions Investing in RMBS and CDOs, S&P’s Credit Rating Business for RMBS and CDOs... if S&P’s Structured Finance Department 2. S&P’s RMBS and CDO Ratings Fees... 3, The Profitability of S&P’s RMBS and CDO Ratings F. S&P’s Credit Rating Process for CDOs ._. G 1. CDO Evaluator and Genesis = : 2. The Importance of Ratings of a CDO’s Underlying, Assets .... 3. Effective Date Rating Agency Confirmations . S&P’s Surveillance of RMBS and CDO Credit Ratings i COMPLAINT CAA M UE 10 4 14 16 17 18 20 22 24 25c ~ VI. S&P’s Scheme to Defraud : A. S&P Repeatedly Represented that its Ratings Were Objective, Independent, Uninfluenced by Any Conflicts of Interest that Might Compromise S&P’s Analytic Judgment, and Reflected S&P’s True Current Opinion Regarding Credit Risks... B. S&P’s Representations Were False . 1. Considerations Regarding Fees, Market Share, Profits, and Relationships with Issuers Improperly Influenced S&P’s Rating Criteria and Models, a. Decisions on Rating Criteria, b. Development and Updating of LEVELS c. Development and Updating of CDO Evaluator. i. Delays and Limitations of Updates... ii, ‘The E3 Transition Period and E3 Low, iii, Bending the Model to Suit Business Needs d. Failing to Account for Increased Credit Risks of Non- Prime RMBS. oe Considerations Regarding Fees, Market Share, Profits, and Relationships with Issuers Led S&P to Issue CDO BR Ratings that Failed to Account for Substantially Increased Credit Risks of Non-Prime RMBS to Which the CDOs Were Exposed, 7 a. In Late 2006, S&P Became Aware that the Performance of Non-Prime RMBS Was Demonstrating Unprecedented Deterioration, ii COMPLAINT. 28 38 39 2 48 48 a 58 59 59