Note: This article has been updated to include quotes from the tentative order.

A federal judge in California has said he likely would allow the U.S. Justice Department’s lawsuit to go forward against ratings agency Standard & Poor’s Financial Services LLC over the integrity of its ratings leading up to the 2008 financial collapse.

U.S. District Judge David Carter in Santa Ana, Calif., announced he would tentatively deny S&P’s motion to dismiss after hearing arguments on Monday. In his order, he said that S&P’s statements were not mere “puffery” but material to investors.

“The issue of reliance also weighs heavily in favor of Plaintiff’s arguments,” Carter wrote. “The government’s complaint goes to great lengths to plead that S&P made specific representations knowing that they were material to and would be relied on by the investors who used their credit ratings to gauge the creditworthiness of potential investments.”

Carter said that the government had alleged specific examples when individuals at S&P knew that ratings of particular collateralized debt obligations should have been downgraded. “The specifics are voluminous, and the complaint takes the time to allege, in a comprehensive fashion, how and why S&P’s ratings were both false and material,” he wrote.

Carter did not issue a final ruling but took the matter under submission. He scheduled the next hearing for July 29.

The Justice Department, in a suit filed on February 4, asserts that Standard & Poor’s false ratings misled investors and is seeking $5 billion in civil penalties under the Financial Institutions Reform, Recovery and Enforcement Act of 1989.

Monday’s hearing packed a courtroom with high-profile attorneys. Acting Associate General Tony West and two trial attorneys from the Justice Department in Washington were in attendance, as was André Birotte, U.S. attorney for the Central District of California, where the case was filed.

John Keker of San Francisco’s Keker & Van Nest, representing S&P, which had moved to dismiss the case, argued that the government’s complaint is filled with generic “puffery” that the ratings agency issued in the years leading to the collapse. Given their general nature, the allegations could pertain to as many as 5,000 securities offerings that S&P rated during that time, he said.

“What ratings? Who knew it? How is it false?” Keker said. “Please tell us and we’ll defend our case. If they think some ratings were false, they ought to say what they are.”

Keker noted that 90 percent of the investor losses alleged in the complaint were to the banks that issued the securities. He noted that the government chose not to sue Moody’s Corp., which also rated collateralized debt obligations.

“They’re blaming S&P for an unprecedented financial collapse that nobody foresaw,” he said.

Assistant U.S. attorney George Cardona in Los Angeles said investors relied on S&P’s ratings as “material and important” because they guaranteed the agency was providing fair ratings. Those statements sought to alleviate the concerns of investors, who knew that the agency’s business division earned revenue through fees charged to the banks issuing the collateralized debt obligations, he said.

S&P, owned by McGraw Hill Financial Inc., had promised federal regulators and Congress that its practices and procedures would ensure such objectivity, he said.

“Our allegations are [that] that wasn’t true and that’s why we get to fraud in this case,” he said.

He disputed that specific collateral debt obligations weren’t identified in the complaint but acknowledged that the government likely would trim its case should there be a trial.

During much of the hearing, Carter delved into the specifics of the collateralized debt obligations at issue – in particular, how much of the packages that were sold and marketed to investors adequately described the risks involved in purchasing them. Specifically, Carter appeared concerned about the mix in those packages of residential mortgage-backed securities with student loans and credit card debt, which have no physical assets backing them.

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