S&P labels suit by U.S. ‘retaliation’

It cites ’11 drop on credit rating

Standard & Poor’s called the $5 billion fraud lawsuit filed against it by the federal government “retaliation” for the rating company’s downgrade of U.S. creditworthiness, according to a filing in federal court in Santa Ana, Calif.

S&P said the government filed “selective, punitive and meritless litigation” after the company exercised “free speech rights with respect to the creditworthiness of the United States of America.”

“Only S&P Ratings downgraded the United States and only S&P Ratings has been sued by the United States, even though the S&P ratings challenged by the United States were no different than those of at least one other rating agency and other rating agencies have made the same assertions of ‘independence’ that are challenged in the complaint as against S&P,” John Keker, an attorney for the New York-based firm, said in the filing.

The Justice Department filed civil charges against the rating agency in February, claiming that S&P refused to warn investors that the housing market was collapsing because it would be bad for business. The government also claims that S&P knowingly inflated ratings of risky mortgage investments that helped trigger an economic crisis. And that S&P gave high marks to the investments because it wanted to earn more business from the banks that issued them.

S&P, a unit of McGraw Hill Cos., has repeatedly denied the claims. It also said that, like nearly everyone else at the time, S&P did not anticipate the scope or impact of the collapse of the housing market on the economy.

In its response Tuesday to the government’s lawsuit, S&P said it is being sued in retaliation for its 2011 downgrade of the United States’ top-tier credit rating.

The rating agency downgraded the U.S. government’s long-term credit rating one notch to “AA+” after a standoff in Congress over whether to raise America’s borrowing limit. The agency was concerned that the country’s leaders weren’t addressing the federal debt burden.

It was a historic move that sent the stock market plunging, and rattled consumer and business confidence. Previously, the U.S. government had always received a “AAA” rating, reserved for the most creditworthy borrowers.

Adora Andy Jenkins, a Justice Department spokesman, responded to questions about Tuesday’s filing by citing a transcript from the Feb. 5 news conference announcing the case, where Associate Attorney General Tony West said there was “no connection” to the downgrade.

“We looked at the facts, the law, and the investigation that these great prosecutors and civil lawyers put together and made a determination that the filing of these lawsuits was appropriate, but they are not in any way connected,” West, the No. 3 official at the department, said at the time.

S&P wants the lawsuit dismissed with prejudice, meaning that it cannot be filed again.

Standard & Poor’s Ratings Services reaffirmed the country’s “AA+” rating in June and upgraded its outlook to “Stable” from “Negative” on some easing of Washington’s political gridlock, a recovering U.S. economy and stronger government finances.

The improved outlook means it’s less likely to downgrade the U.S. debt in the near future.

Information for this article was contributed by Sara Skidmore and Marcy Gordon of The Associated Press and by Karen Gullo of Bloomberg News.

Front Section, Pages 1 on 09/05/2013

Upcoming Events