(Adds Justice Department and S&P comments, details from
decision, paragraphs 3, 5, 7-8)
By Jonathan Stempel
April 15 A federal judge on Tuesday rejected a
request by Standard & Poor's to split up the U.S. government's
$5 billion lawsuit accusing it of lying about its credit
ratings, paving the way for a single trial in the civil fraud
U.S. District Judge David Carter in Santa Ana, California,
nonetheless gave S&P, a unit of McGraw Hill Financial Inc
, access to evidence that the lawsuit may have been in
retaliation for the agency's Aug. 5, 2011 decision to lower the
U.S. credit rating to "AA-plus" from "triple-A."
He stopped short of giving Standard & Poor's Ratings
Services access to White House records from that time, but said
he would consider such a request later.
S&P has said former U.S. Treasury Secretary Timothy Geithner
angrily told McGraw Hill Chairman Harold "Terry" McGraw in an
Aug. 8, 2011 phone call that he was "accountable" for an alleged
$2 trillion math error, and that S&P's conduct would be "looked
at very carefully."
Carter also ordered the U.S. Department of Justice to turn
over all documents from probes of potential fraud related to
residential mortgage-backed securities issued between 2004 and
2008. "Compliance with these requests will be burdensome to the
government, but that burden is not undue," the judge wrote.
The February 2013 lawsuit accused S&P of adding fuel to the
2008 financial crisis, and causing losses for federally insured
banks and credit unions, by inflating ratings to boost fees from
issuers, and being slow to downgrade souring mortgage debt.
S&P spokesman Edward Sweeney said: "We are pleased that the
court granted our discovery request and has compelled the DOJ to
provide the information S&P needs to fully defend against these
Ellen Canale, a Justice Department spokeswoman, said agency
officials are reviewing the decision. A Treasury Department
spokesman referred a request for comment to the Justice
S&P had proposed holding a trial in two parts, with the
first focusing on 17 of the roughly 160 securities at issue,
where Citigroup Inc was alleged to have suffered losses.
It said this would simplify the case for jurors and avoid a
need to present "overwhelming" amounts of evidence.
But the judge said "facts that are common to all, or nearly
all, of the securities" at issue underlay the government's case.
"It is true that each security will raise issues unique to
particular financial institutions," he wrote. "But, the heart of
each of the government's claims is that S&P engaged in a 'scheme
He also agreed with the government that holding two trials
could violate the Seventh Amendment of the U.S. Constitution, by
allowing different juries to review many overlapping issues.
The trial is scheduled for Sept. 29, 2015.
S&P fared better with its "selective prosecution" defense,
in which it claims the government interfered with its free
speech rights by retaliating for a rating downgrade that was a
result of Washington's inability to manage the nation's debt.
U.S. officials have denied that the lawsuit and downgrade
were linked, though the government did not sue S&P rivals
Moody's Investors Service and Fitch Ratings over their ratings.
Carter ordered the government to produce relevant documents
to the defense that are not protected by White House privilege.
The judge called evidence of discriminatory intent
"circumstantial but sufficient," saying that Geithner had
"personally expressed his anger" to Terry McGraw just minutes
after speaking to President Barack Obama and other officials.
"It is unclear whether there is a nexus between his
displeasure and the Department of Justice's litigation
decisions," Carter wrote, referring to Geithner.
Jenni LeCompte, a spokeswoman for Geithner, maintained that
the allegation that Geithner "threatened or took any action to
prompt retaliatory government action against S&P is false."
McGraw Hill ended 2013 with $1.54 billion of cash and
equivalents. Shares of the New York-based company closed Tuesday
up 40 cents at $73.38 on the New York Stock Exchange.
The case is U.S. v. McGraw-Hill Cos et al, U.S. District
Court, Central District of California, No. 13-00779.
(Reporting by Jonathan Stempel in New York; Editing by Steve
Orlofsky and Lisa Shumaker)