S&P Tells Judge: Obama, Geithner Wanted Payback for US Downgrade

Tuesday, 25 Feb 2014 06:46 AM

 

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Standard & Poor’s said a meeting between President Barack Obama and his treasury secretary in 2011 just before the company was warned to expect a response to its downgrade of U.S. debt justifies its need to see White House communications to defend itself against fraud claims.

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The timing of the conference between Obama and then-U.S. Treasury Secretary Timothy Geithner, memorialized in his own calendar records, before Geithner voiced his anger about the downgrade to McGraw Hill Financial Inc. Chairman Harold W. McGraw III may support S&P’s claim that the fraud lawsuit the Justice Department filed against it last year was retaliation, the company said today in a filing in federal court in Santa Ana, California.

The government seeks as much as $5 billion in civil penalties for losses to federally insured banks and credit union who relied on the S&P’s claims that its ratings of residential mortgage-backed securities and collateralized-debt obligation, prior to the collapse of the U.S. housing market, were free of conflicts of interest.

S&P has said it gave the same ratings as Moody’s Corp. to those securities and was singled out by the Justice Department because it was the only credit rating company to downgrade the U.S. in August 2011. Geithner met with Obama the morning of Aug. 8, 2011, three days after the downgrade, S&P said in its filing.

“Immediately after his meeting with the President, Secretary Geithner returned to his office and, at 10:15 a.m., he called Mr. McGraw personally,” S&P said, citing Geithner’s calendars available on the Treasury Department’s website. The calendar entries don’t reflect what was discussed. “On that call, Secretary Geithner stated to Mr. McGraw that S&P had done an ‘enormous disservice to yourselves and to your country.’”

‘Fishing Expedition’

The Justice Department said last month that S&P’s quest for White House records was a “fishing expedition” and urged U.S. District Judge David Carter to deny the rating company’s request to force the government to hand over the information.

The government alleged in its Feb. 4, 2013, complaint that S&P knowingly downplayed the risk on securities before the credit crisis to win business from investment banks seeking the highest possible ratings to help them sell the instruments. The Justice Department has denied any connection between the downgrade and the lawsuit.

Ellen Canale, a spokeswoman for the Justice Department, had no immediate comment on today’s filing. Jay Carney, White House press secretary, didn’t immediately respond to an e-mail seeking comment.

“The allegation that former Secretary Geithner threatened or took any action to prompt retaliatory government action against S&P is false,” Jenni LeCompte, a spokeswoman for Geithner, said in an e-mailed statement last month.

The case is U.S. v. McGraw Hill Financial Inc., 13-779, U.S. District Court, Central District of California (Santa Ana).

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