April 8, 2014 / 3:23 PM / 5 years ago

U.S. wants one trial in $5 billion fraud case versus S&P

(Reuters) - The United States said its $5 billion civil fraud lawsuit against Standard & Poor’s should be tried all at once, rejecting the credit rating agency’s insistence that a single trial would be too big, confusing and unfair.

A man walks past the Standard and Poor's building in New York's financial district February 5, 2013. REUTERS/Brendan McDermid

S&P, a unit of McGraw Hill Financial Inc, was accused of causing losses for federally-insured banks and credit unions by inflating ratings to win more fees from issuers, and being too slow to downgrade debt backed by souring mortgages, contributing to the 2008 financial crisis.

Last month, S&P proposed holding two trials, with the first focused on just 17 securities out of the roughly 160 at issue, where Citigroup Inc was alleged to have suffered losses.

In a Monday court filing, U.S. Attorney Andre Birotte in Los Angeles said “mini-trials” would “severely prejudice” the United States by preventing it from showing “the full and complete nature of S&P’s alleged fraud” to a single jury.

He said this would include “great swaths” of evidence that S&P intended to defraud investors that, unlike Citigroup and Bank of America Corp, were not involved in the issuance of securities it rated.

Holding one trial “is particularly necessary to counter S&P’s efforts to focus on isolated employee actions at an individual security level,” Birotte wrote.

He also said two trials would likely violate the 7th Amendment of the U.S. Constitution, by allowing different juries to review many of the same overlapping issues in a single case.

S&P has argued that a single trial would force it to present “overwhelming” amounts of evidence to counter the government’s claims, perhaps more easily grasped by jurors, that its ratings lacked “independence” and “objectivity.”

Catherine Mathis, an S&P spokeswoman, said on Tuesday: “The government has alleged a case of such sweeping breadth that it cannot fairly be tried in a single trial. Bifurcation is efficient, practical and fair.”


The lawsuit is one of several where the government has used the Financial Institutions Reform, Recovery and Enforcement Act, which was passed after the 1980s savings and loan scandal, to address alleged misconduct causing the financial crisis.

U.S. District Judge David Carter in Santa Ana, California is expected to decide by April 15 whether to bifurcate the case. A trial is now scheduled for September 2015.

According to the government, the lawsuit addresses alleged wrongdoing from 2004 to 2007, and covers 162 securities: 106 collateralized debt obligations (CDOs) and 56 residential mortgage-backed securities. S&P put the combined number at 158.

The government said that if there were two trials, it would prefer the first to focus on all the CDOs, or a subset of CDOs that allegedly caused more than $4.5 billion of losses.

S&P has contended that the government sued in retaliation for its 2011 decision to take away the United States’ “triple-A” rating over Washington’s inability to manage the country’s debt.

U.S. officials have denied such a link. The government did not sue S&P rivals Moody’s Investors Service and Fitch Ratings.

The case is U.S. v. McGraw-Hill Cos et al, U.S. District Court, Central District of California, No. 13-00779.

Reporting by Jonathan Stempel in New York; editing by Andrew Hay

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