S.&P. Calls Government\'s Suit \'Meritless\'

Standard & Poor’s Ratings Services defended its corporate practices on Tuesday, saying a civil lawsuit filed by the Justice Department that accuses the firm of inflating its ratings of mortgage investments was “meritless.”

The Justice Department filed a suit in federal court in Los Angeles late on Monday, saying the firm knowingly defrauded investors in certain mortgage-related securities by making them appear safer than they actually were. Shares of McGraw-Hill, the parent company of S.&.P, were down more than 5 percent on midday Tuesday.

The Justice Department’s case against S.&P. focuses on certain collateralized debt obligations, or C.D.O.’s, financial instruments consisting of bundles of mortgage bonds. It also took issue with S.&P.’s models for residential mortgage-backed securities.

In its statement, S.&P. said “claims that we deliberately kept ratings high when we knew they should be lower are simply not true.”

“Unfortunately,” the firm added, “S.&P., like everyone else, did not predict the speed and severity of the coming crisis and how credit quality would ultimately be affected.”

S.&P. said there was robust internal debate about the deteriorating housing market and that “20/20 hindsight is no basis to take legal action against the good-faith opinions of professionals.”

The government’s suit references several e-mails written by S.&P. employees, some of them expressing strong concern about the way such securities were being rated. S.&P. says the excerpts were taken out of context and “are contradicted by other evidence, and do not re! flect our culture, integrity or how we do business.”

The firm said that in the last five years, it had brought in new leadership and spent about $400 million to improve its ratings systems.