* Judge denies S&P's motion to dismiss the lawsuit
* S&P accused of inflating ratings to win business
* S&P has said Justice Department lawsuit lacks merit
July 17 A U.S. federal judge has ruled that the
U.S. government may pursue its $5 billion civil fraud lawsuit
accusing Standard & Poor's of misleading investors by inflating
U.S. District Judge David Carter in Santa Ana, California
said late on Tuesday the government had made its case
sufficiently to support its fraud claims, while denying S&P's
motion to dismiss the lawsuit.
Fourteen U.S. states and the District of Columbia are suing
S&P, a unit of McGraw Hill Financial Inc, over similar
claims in the U.S. District Court in Manhattan.
The Feb. 4 lawsuit accused S&P of not being objective in its
ratings from 2004 to 2007 and inflating ratings so that it could
win more fees from issuers and bankers that pay for its ratings.
The lawsuit outlined in what the judge called "comprehensive
detail" how the largest U.S. credit rating agency failed to
downgrade its ratings for collateralized debt obligations
despite "clear knowledge" that they were backed by deteriorating
residential mortgage-backed securities.
According to the complaint, S&P rated more than $2.8
trillion of RMBS and nearly $1.2 trillion of CDOs from September
2004 to October 2007.
S&P has argued that statements about the integrity of its
ratings constitute "puffery" that cannot be a basis for the
The Justice Department had sued under the Financial
Institutions Reform, Recovery and Enforcement Act, a 1989 law
passed after the savings and loan crisis which allows the
government to seek penalties for losses affecting federally
insured financial institutions.
S&P's main rivals are Moody's Corp's Moody's
Investors Service and Fimalac SA's Fitch Ratings. The
government has not brought a lawsuit similar to the S&P case
The case is U.S. v. McGraw-Hill Cos et al, U.S. District
Court, Central District of California, No. 13-00779.