February 5th, 2013
06:38 AM GMT
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(CNN) - In a first for a U.S. credit ratings agency, Standard & Poor's has received official notice from Washington that it will face a civil lawsuit over imprecise ratings - now criticized as being too high by analysts, U.S. lawmakers and even S&P itself - of mortgage-backed investments that eventually contributed to the 2008 financial crisis.

Many of those investments received AAA ratings, a grade which implies highest safety and least risk, but imploded as the U.S. housing bubble burst.

As S&P awaits further word from the U.S. Department of Justice, ratings agencies Moody's and Fitch will be watching to see if they are next.

Standard & Poor's parent company, McGraw-Hill Companies, plunged 13.78% in Monday trading, after investors learned of the Department of Justice's intent to file suit. The company's share price fall was its biggest one-day drop since the stock market crash of 1987.

It is unclear as to why S&P is the first to be targeted but according to a recent New York Times report, settlement talks between the ratings agency and the Department of Justice fell through in the past two weeks. The article also reported that prosecutors demanded S&P pay a $1 billion penalty and admit to wrongdoing.

In a statement, S&P has said the expected Department of Justice is "entirely without factual or legal merit."

For more on who the major credit ratings agencies are and why they have so much power, click here for the full story.

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