Credit raters currently operate under an "issuer pay" model, wherein issuers pay raters to provide a rating to their financial product. Critics have argued this method creates a conflict of interest for credit raters, and implicit pressure to provide higher ratings.
The Senate report found that more than 90 percent of AAA ratings given to mortgage-backed securities in 2006 and 2007 — as the subprime mortgage crisis reached its peak — ultimately were downgraded to junk status.
Fellow raters Moody's Investors Service and Fitch Ratings have been similarly criticized, but no similar cases against them have been reported. S&P became the first credit rater to downgrade the United States's credit rating
According to the Journal, the government's case will challenge the model S&P used to provide ratings to mortgage bonds. Raters, which have faced a slew of lawsuits since the financial meltdown, have argued that their methods are protected under the First Amendment.
The Justice Department declined to comment.
This post updated at 3:47 pm.