New York Attorney General Eric Schneiderman is investigatingStandard & Poor's to determine whether it failed to follow itsown methodology in rating commercial-mortgage bonds (CMBS) in orderto win business from banks, according to two people with knowledgeof the matter.

The unit of McGraw Hill Financial Inc. is facing scrutiny on sixsuch deals it graded in 2011, said the people, who asked not to beidentified because the probe hasn't been made public. Ed Sweeney, aspokesman for S&P in New York, declined to comment, as did MattMittenthal, a spokesman for Schneiderman.

The New York Attorney General's office is at least the thirdgovernment agency investigating S&P's business of gradingcommercial mortgage-backed securities, in which banks pool togetherloans on properties such as shopping malls, hotels, and skyscrapersto create securities that are sold to investors.

S&P said in July it received a notice from the U.S.Securities Exchange Commission (SEC) that the regulator may seek anenforcement action related to the firm's CMBS ratings in 2011.Massachusetts Attorney General Martha Coakley is also looking intohow the firm rated such securities, people familiar with the mattersaid last year.

The ratings firm is separately facing a $5 billion lawsuit filedby the U.S. Justice Department in February 2013, alleging thatS&P and its parent inflated ratings on bonds backed by homeloans made to the riskiest borrowers to win business from WallStreet banks. S&P, along with Moody's Investors Service andFitch Ratings, were blamed for helping trigger a financial crisisthat sent the world's largest economy into its longest recessionsince 1933.

After the Justice Department filed the lawsuit, S&P said itwould defend itself “vigorously” against the “meritless”claims.

Four days before receiving the SEC warning on July 22, S&Pcut almost a third of its CMBS group and transferred departmenthead Peter Eastham to a role in his native Australia, according toa person with knowledge of the move. Following the reduction, therewere about 32 people in the group.

The SEC alleged violations related to the CMBS rankings and“public disclosure made by S&P regarding those ratingsthereafter,” according to a July 23 regulatory filing. The SEC maypursue actions including a cease-and-desist order, civil moneypenalties, or a suspension or revocation of the firm's ratingsaccreditation.

Grading securities tied to debt on skyscrapers, hotels, andshopping centers is one of the most lucrative businesses forratings companies. The firms generally charge between $1.25 millionand $2 million to grade a commercial mortgage bond, which bundlesthe loans into securities of varying risk, according to an October2011 Federal Reserve paper.

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