Standard & Poor’s, getting its first shot in open court at U.S. Justice Department claims it should pay as much as $5bn in civil penalties, will defend itself by arguing reasonable investors wouldn’t have relied on its 'puffery' about credit ratings.
Bloomberg News reports that lawyers for the McGraw Hill Financial unit are scheduled to argue today before U.S. District Judge David Carter in Santa Ana, California, that the government failed to adequately support allegations that the company defrauded investors, including federally insured financial institutions, by knowingly understating the credit risks of securities linked to residential mortgages.
S&P said in its request to dismiss the case that the government can’t base its fraud claims on S&P’s assertions that its ratings were independent, objective and free of conflicts of interest because U.S. courts have found that such vague and generalized statements are the kind of 'puffery' that a reasonable investor wouldn’t rely on.
The government also claims fraud “despite the fact that other rating agencies issued ratings identical to those of S&P on the same securities at issue, and despite the fact that its views were consistent with those of virtually every other market participant,” the company said in the April 22 filing.
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