Judge lets U.S. pursue $5-billion fraud lawsuit against S&P

Wed Jul 17, 2013 10:56am EDT
 
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By Jonathan Stempel

(Reuters) - The U.S. government may proceed with its $5 billion lawsuit accusing Standard & Poor's of misleading investors by inflating its credit ratings, after a federal judge rejected the rating agency's effort to dismiss the civil fraud case.

In a written decision late on Tuesday, the judge said the government could pursue claims that S&P manipulated ratings to boost profit, and in doing so, concealed credit risks and conflicts of interest.

This led to large losses for investors and contributed to the 2008 financial crisis, the government contended.

"The government's complaint alleges, in detail, the ways in which none of S&P's credit ratings represented the thing that they were supposed to represent, which was an objective assessment of creditworthiness, because business considerations infected the entire rating process," wrote U.S. District Judge David Carter, in Santa Ana, California.

S&P, a unit of McGraw Hill Financial Inc, has said statements about the integrity of its ratings are "puffery" that cannot be a basis for the fraud lawsuit, filed on February 4 by the U.S. Department of Justice.

Catherine Mathis, an S&P spokeswoman, said on Wednesday the lawsuit lacks merit.

"We firmly believe S&P's ratings were and are independent and expect to show just that in court," she said.

The lawsuit accused the largest U.S. credit rating agency of inflating ratings to win more fees from the issuers and bankers that pay for them.   Continued...

 
A view shows the Standard & Poor's building in New York's financial district February 5, 2013. REUTERS/Brendan McDermid