(CNN) Standard & Poor's revealed Monday that it is set to face a lawsuit from the U.S. government over its inaccurate ratings of mortgage-related investments in the run-up to the financial crisis.
The ratings agency said in a statement that the Department of Justice "has informed the company that it intends to file a civil lawsuit against S&P focusing on its ratings in 2007 of certain U.S. collateralized debt obligations," investments based on pools of mortgages.
S&P called the potential lawsuit "entirely without factual or legal merit." The firm said that it "deeply regrets" the fact that its ratings "failed to fully anticipate the rapidly deteriorating conditions in the U.S. mortgage market," but that it relied on the same data as U.S. government officials and other analysts who failed to predict the housing bust.
News of the looming lawsuit was reported earlier by The Wall Street Journal. A spokeswoman for the Department of Justice declined to comment.
S&P is a division of McGraw-Hill (MHP, Fortune 500), shares of which dropped sharply on the news, closing down 13.8%. Shares of fellow ratings agency Moody's (MCO) fell 10.7%.
A Moody's spokesman declined to comment. A spokesman for Fitch, the other of the big three ratings agencies, said the firm has "no reason to believe Fitch is a target of any such action."