Standard & Poor's on Wednesday began trying to move lawsuits by 15 states and Washington, D.C. over its credit ratings to federal court from state court, hoping to limit its liability in one of the biggest fraud cases tied to the financial crisis.
In multiple court filings, the McGraw-Hill Cos unit said the "wave" of civil lawsuits raises "significant" federal regulatory and constitutional issues that should be addressed all at once, to help ensure that national securities markets operate efficiently.
S&P also said the potential for a "patchwork" of state court injunctions governing its conduct could thwart Congress' intent to give the U.S. Securities and Exchange Commission primary oversight over the ratings process, and perhaps unduly impede its ability to function.
Such a patchwork "would have the effect of making the most restrictive element from each such injunction the 'de facto' national standard," lawyers including First Amendment specialist Floyd Abrams argued in briefs filed for S&P.
Connecticut Attorney General George Jepsen leads a coalition of state attorneys general that brought the state cases.
These were announced on February 5, the same day that the U.S. Department of Justice said it was seeking $5 billion in its own civil lawsuit against S&P.
Jepsen was not immediately available for comment. McGraw-Hill spokeswoman Catherine Mathis was also not immediately available for comment.
The lawsuits accuse S&P of inflating ratings in a bid to win fees from clients, and misleading investors into believing its ratings were objective and not tainted by conflicts of interest.
Many of the challenged ratings were for collateralized debt obligations and other mortgage-backed securities whose value plunged during the housing and credit crises.
The $5 billion sought in the federal case alone is more than 10 times the profit of McGraw-Hill in 2012, and more than six times the New York-based company's year-end cash stake.
Moody's Corp's Moody's Investors Service and Fimalac SA's Fitch Ratings, which are S&P's main rivals, were not hit with similar federal lawsuits.
S&P wants to move lawsuits by Arizona, Arkansas, Colorado, Connecticut, Delaware, the District of Columbia, Idaho, Illinois, Iowa, Maine, Missouri, North Carolina, Pennsylvania, South Carolina, Tennessee and Washington, and then have the Judicial Panel on Multidistrict Litigation consolidate them.
A 17th lawsuit, by Mississippi, is already in federal court, while an 18th lawsuit by California will stay in state court because it overlaps a private lawsuit that was already there, S&P said.
McGraw-Hill shares fell 26.9 percent during the week the lawsuits were announced, and have since recovered about one-third of that decline. In afternoon trading, the shares were down 38 cents at $47.81 on the New York Stock Exchange.
The Connecticut case is Connecticut v. McGraw-Hill Cos et al, U.S. District Court, District of Connecticut, No. 13-00311.
(Reporting by Jonathan Stempel in New York; Editing by Bernard Orr)