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The lawsuit against the McGraw-Hill Cos unit focuses on its ratings in 2007 of various U.S. collateralized debt obligations (CDO), S&P said.
It would be the first federal enforcement action against a credit rating agency over alleged illegal behavior tied to the financial crisis.
"A DOJ lawsuit would be entirely without factual or legal merit," S&P said in a statement. "The DOJ would be wrong in contending that S&P ratings were motivated by commercial considerations and not issued in good faith."
The Justice Department was not immediately available for comment.
Several state attorneys general are expected to join the case, The Wall Street Journal said, citing people familiar with the matter. The expected charges follow the breakdown of talks between the department and S&P, the newspaper said, citing the people.
In afternoon trading, McGraw-Hill shares were down $2.39, or 4.1 percent, at $55.95.
S&P and its main rivals, Moody's Corp's Moody's Investors Service and Fimalac SA's Fitch Ratings, have long faced criticism from investors, politicians and regulators for assigning high ratings to thousands of subprime and other mortgage securities that quickly turned sour.
The rating agencies are paid by issuers for ratings, a standard industry practice that has nonetheless raised concern about potential conflicts of interest.
In January 2011, the Financial Crisis Inquiry Commission called the agencies "essential cogs in the wheel of financial destruction" and "key enablers of the financial meltdown."
McGraw-Hill had acknowledged last July that the Justice Department and SEC were probing potential violations by S&P tied to its ratings of structured products, and that it was in talks to try to avert a lawsuit.
The New York-based company had previously disclosed an SEC probe into its ratings of a $1.6 billion CDO known as Delphinus CDO 2007-1. It was not immediately clear whether that CDO is a focus of the potential lawsuits.
Last July, Mizuho Financial Group Inc agreed to a $127.5 million settlement to resolve SEC allegations that a U.S. unit obtained false credit ratings for Delphinus.
In a variety of lawsuits brought by investors, S&P has maintained that its ratings constitute opinions protected by the 1st Amendment to the U.S. Constitution.
Last August, a Manhattan federal judge refused to dismiss one such case, brought by Abu Dhabi Commercial Bank, King County in Washington state, and other investors against S&P, Moody's and Morgan Stanley over losses in Cheyne, a structured investment vehicle.
Cheyne went bankrupt in August 2007. A trial is scheduled to begin on May 6, court records show.
In its statement, S&P said it "deeply regrets" how its CDO ratings failed to anticipate the fast-deteriorating mortgage market conditions, and that it has since spent $400 million to help bolster the quality of its ratings.