The US Justice Department is investigating the rating agency Standard & Poor's over its actions on mortgages leading up to the financial crisis. The investigation, which the source said relates to what S&P analysts wanted to do and what they were told to do instead, began before the ratings firm, downgraded the long-term US debt to AA-plus from a AAA rating this month.

The probe is being led by the Justice Department's civil division, the source said, declining to be further identified because the investigation is ongoing and not public. The Securities and Exchange Commission has also been probing S&P, a unit of McGraw Hill, over its role in the crisis. Representatives for the Justice Department and SEC declined to comment.

The confirmation comes after the New York Times reported that the probe is centering on whether S&P improperly rated dozens of mortgage securities in the years before the financial crisis that unfolded in 2008. The department has been asking about instances in which S&P analysts wanted to assign lower ratings to mortgage bonds but may have been overruled by S&P business managers.

Mr Ed Sweeney, a spokesman for S&P, said that its core principles had included analytic independence and objectivity and that since 2008 the firm had taken steps to enhance those policies. He added that "S&P has received several requests from different government agencies over the last few years regarding US mortgage related securities. We have co operated and will continue to co operate with these requests."

It was unclear whether the Justice Department investigation involves the other two ratings agencies, Moody's Corp and Fimalac SA's Fitch, which have not downgraded US debt. The Times said that despite the outcry over the ratings agencies' failures in the financial crisis, investors still rely heavily on ratings from the three main agencies for their purchases of sovereign and corporate debt, as well as other complex financial products.

The Senate's permanent subcommittee on investigations, headed by Democratic Senator Mr Carl Levin, issued a report in April that included scathing criticisms of S&P after holding hearings on the financial crisis.

He said that "The hearings held by the Permanent Subcommittee on Investigations and our subsequent report documented reckless actions and significant conflicts of interest on the part of the credit rating agencies that contributed to the financial crisis."

(Sourced from www.reuters.com)