In a legal attempt to assign blame for the nation's financial crisis, the U.S. government sued credit-rating firm Standard & Poor's Financial Services LLC for allegedly underestimating the risks of mortgage-related securities leading up to the 2008 housing market meltdown.

The U.S. Department of Justice filed a civil lawsuit late Monday in Los Angeles federal court against New York-based S&P and its corporate parent, the McGraw-Hill Cos. Inc., under auspices of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. The law enables the justice department to seek civil penalties equal to the losses suffered by federally insured financial institutions. The government said it could seek more than $5 billion from S&P in this case.

Separately on Tuesday, the state of California filed a lawsuit in San Francisco Superior Court against S&P, alleging the ratings firm violated both the state's unfair competition laws and False Claims Act. The lawsuit said that since California's public pension funds purchased securities based on false statements from S&P, the defendant is responsible for the amount lost times three.

U.S. Attorney General Eric Holder said in a statement Tuesday S&P engaged in a scheme between 2004 and 2007 to defraud investors by purposely manipulating ratings criteria and credit models used to gauge the riskiness of the collateralized-debt obligations at the epicenter of the financial crisis.

“We allege that, by knowingly issuing inflated credit ratings for CDOs, which misrepresented their creditworthiness and understated their risks, S&P misled investors, including many federally insured financial institutions, causing them to lose billions of dollars,” Mr. Holder said.

%%BREAK%%

“In addition, we allege that S&P falsely claimed that its ratings were independent, objective, and not influenced by the company's relationship with the issuers who hired S&P to rate the securities in question, when, in reality, the ratings were affected by significant conflicts of interest, and S&P was driven by its desire to increase its profits and market share to favor the interests of issuers over investors.”

S&P, in a statement Monday, called the suit “without legal merit and unjustified,” and said it should not be singled out for blame for not anticipating the full extent of the U.S. housing downturn.

“A number of court rulings have dismissed challenges made with 20/20 hindsight to a credit rating agency's opinions of creditworthiness,” according to S&P's statement. “In an attempt to end run well-established legal precedent, the DOJ plans to use a questionable legal strategy by suing S&P under the Financial Institutions Reform, Recovery and Enforcement Act, a statute enacted in 1989 to stabilize and reform the savings and loan industry.”

Meanwhile, California Attorney General Kamala D. Harris said the suit was filed to hold the company accountable for its conduct that contributed to the nation's financial crisis and noted the suit includes a claim for triple damages for the state.

“For years, S&P placed its priority on maintaining its market share, instead of the investors who trusted in its supposedly objective ratings,” Ms. Harris said in a statement. “When the housing bubble burst, S&P's house of cards collapsed and California paid the price — in billions. S&P must be held accountable for its conduct that contributed to one of our country's worst financial crises.”