Securities Law

Credit-ratings firm seeks dismissal of US suit, says its statements about independence were puffery

In a motion to dismiss a civil suit by the U.S. Justice Department, Standard & Poor’s is arguing that its statements about independence and objectivity were classic puffery.

The agency said such statements were too general and vague to form the basis for a fraud claim, report the Wall Street Journal (sub. req.), Reuters and the New York Times DealBook blog. S&P also argued that the government was improperly using “isolated snippets” from emails to support its case. In reality, S&P argued, the conversations merely showed a robust internal debate.

The Justice Department suit, filed in Los Angeles federal court in February, claimed S&P gave unwarranted optimistic ratings to bundled mortgages that tanked during the financial downturn. The complaint had argued that S&P made public representations of objectivity while downplaying risks in its ratings to cultivate relationships with bond issuers that paid its fees.

S&P’s motion states that its ratings actually were “objective, independent and uninfluenced by conflicts of interest. That, however, is beside the point.” Such statements, the firm said, can’t be the basis for a finding of fraud.

The ratings agency’s payment model will be discussed at a May 14 roundtable discussion hosted by the Securities and Exchange Commission, the Wall Street Journal says. One option recommended by U.S. Sen. Al Franken, D-Minn., would create a board that assigns the work to the ratings agencies, eliminating the potential for conflicts of interest.

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