The mortgage crisis that devastated the Arizona economy was made far worse because of misleading financial claims made by Standard & Poor's, according to a lawsuit filed Tuesday.
Arizona Attorney General Tom Horne joined federal and state enforcers in filing actions against Standard and Poor's for alleged misconduct involving structured finance securities backed by subprime mortgages that were at the heart of the nation's financial crisis.
Arizona is suing under the Arizona Consumer Fraud Act.
"Arizona is one of the states that was hit hardest in the mortgage crisis, and this lawsuit alleges that Standard & Poor's played a key role in making that crisis even worse," Horne said.
Horne said the losses to the Arizona economy are unknown but could be in the hundreds of millions of dollars.
"The evidence will show that S&P issued inflated ratings they knew were false and as a result, Arizona's economy was substantially harmed," Horne added.
The complaint alleges that despite S&P's repeated statements emphasizing its independence and objectivity, S&P allowed its analysis to be influenced by its desire to earn lucrative fees from its investment bank clients, and knowingly assigned inflated credit ratings to toxic assets packaged and sold by the Wall Street investment banks, according to the attorney general's news release.
The alleged misconduct began as early as 2001, became particularly acute between 2004 and 2007, and continued as recently as 2011.
The enforcement action seeks a court order to stop S&P from making misrepresentations to the public; to change the way the company does business, and to obtain awards for civil penalties, as well as attorneys' fees and costs.
The complaint was filed in Maricopa County Superior Court.
Other states taking action on Tuesday were Arkansas, California, Delaware, the District of Columbia, Idaho, Iowa, North Carolina, Maine, Missouri, Pennsylvania, Tennessee and Washington.
Copyright 2013 CBS 5 (KPHO Broadcasting Corporation). All rights reserved.
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