The news just keeps getting worse for Standard & Poor's Financial Services.
Setting in stone a tentative decision reached last week, a federal judge in Santa Ana refused late Tuesday to toss a Justice Department lawsuit accusing S&P of duping investors with inflated credit ratings for financial products backed by subprime securities. U.S. District Judge David Carter rejected arguments by S&P's lawyers at Cahill Gordon & Reindel and Keker & Van Nest that the company's statements about the integrity of its rating process are mere "puffery," allowing the government's potentially groundbreaking case to move forward.
In its Feb. 4 complaint, the DOJ accused S&P of presenting its ratings as objective and independent even as it catered to the whims of bankers, slapping top ratings on ill-fated securities that helped sink the economy. The DOJ is seeking $5 billion in civil penalties under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, a law passed in the wake of the savings and loan crisis.
Following a July 8 hearing attended by The National Law Journal's Amanda Bronstad, Carter issued a tentative order concluding that statements S&P made about its ratings prior to the crash were plausibly relied upon by investors. S&P counsel John Keker had argued that the government's complaint rested on company statements that amounted to no more than "puffery" under the law. Given the generic nature of S&P's statements, Keker said, the allegations could pertain to as many as 5,000 securities offerings that S&P rated during in the run-up to the financial crisis. Assistant U.S. attorney George Cardona in Los Angeles countered that investors relied on S&P's statements as "material and important."
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.
For questions call 1-877-256-2472 or contact us at [email protected]
