S&P asks federal judge to dismiss U.S. civil fraud lawsuit
Standard & Poor's asked a federal judge on Monday to dismiss a U.S. Justice Department civil fraud lawsuit against the rating agency, arguing the statements that underpin the government's case are too vague and therefore can't be used to prove fraud.
The United States had accused the ratings agency of misleading investors during the run-up to the financial crisis by inflating ratings on faulty products in a bid to drum up business, despite company statements that its ratings were objective.
S&P has vociferously defended itself in public since the case was filed in February in U.S. District Court in Los Angeles, denouncing the lawsuit as meritless and accusing the government of cherry-picking emails to misconstrue what its analysts did.
The rating agency has also moved to consolidate in federal court a series of parallel lawsuits more than a dozen states have filed against it.
"From start to finish, the Complaint overreaches in targeting S&P, a rating agency that did not create, issue, sell or receive any interest in any security at issue in the case," lawyers for the ratings firm, which is owned by McGraw-Hill Companies Inc , said in the filing.
While statements about the company's independence could be considered corporate "puffery" and its ratings were not particularly prescient, none of that proves fraud, the company said.
The 2007-2009 financial crisis was due in large part to massive losses triggered by risky mortgage loans packaged and sold to investors, often with top ratings from credit raters.
But the raters have escaped most liability for their ratings from that time, since courts have largely protected them as opinions under free speech laws.
The lawsuit, one of the most ambitious the government has filed in response to the financial crisis, says the rating agency engaged in a scheme to defraud investors, financial institutions and others telling them that its ratings were "objective, independent, uninfluenced by any conflicts of interest that might compromise S&P's analytic judgment."
Meanwhile, the government alleges that S&P inflated ratings and understated risks as the housing bubble started to burst, driven by a desire to gain more business from the investment banks that issued mortgage securities.
In its Monday filing, S&P said the government's argument doesn't hold up, because those statements S&P made about its independence "are altogether too general and vague to constitute the basis for a fraud claim."
The ratings firm cited another recent federal court ruling, upheld by an appeals court, that described similar statements as "puffery" on which a fraud case couldn't be based.
The company also said the government can't prove the rating agency meant to defraud investors who bought the flawed securities.
S&P's motion also recasts the internal emails and messages the government relied on heavily in its original 119-page filing.
While the government says those messages, which include one analyst performing a pop song parody about the housing market burning down, paint a picture of a company knowingly slapping inflated ratings on structured finance products, the company's filing says otherwise.
Those messages, instead, the company said, show internal squabbling or even "robust internal debate."
(Reporting by Aruna Viswanatha; Editing by Diane Craft)