Federal judge OKs feds' $5B suit against Standard & Poor's, blasts 'troubling' defense of 'puffery'
A federal judge in Santa Ana, Calif., has given the green light to a Department of Justice lawsuit claiming that Standard & Poor’s Rating Services fraudulently misrepresented its evaluations of companies as independent and objective.
While U.S. District Judge David O. Carter has not ruled on the merits, he denied S&P’s motion to dismiss the Los Angeles case on Tuesday. He called the agency’s “puffery” defense, in which it claims that S&P’s claims about its ratings process weren’t intended to be taken seriously by investors, “deeply and unavoidably troubling,” reports the Wall Street Journal (sub. req.).
A spokesman for the company told the newspaper, “We now welcome the opportunity to demonstrate the lack of merit to the Justice Department’s complaint. We firmly believe S&P’s ratings were and are independent and expect to show just that in court.”
U.S. Attorney Andre Birotte Jr. of Los Angeles filed the lawsuit pursuant to the Financial Institutions Reform, Recovery and Enforcement Act, a 1989 which allows the government to seek civil penalties for losses caused to federally insured financial institutions by fraud.
ABAJournal.com: “Credit-ratings firm seeks dismissal of US suit, says its statements about independence were puffery”
Bloomberg: “S&P Raises Puffery Defense Against U.S. Ratings Case”
Bloomberg (opinion): “Standard & Poor’s and an Awful Legal Defense”