S&P: Federal Lawsuit Payback for Downgrading US on Obama's Watch

Wednesday, 19 Feb 2014 06:19 AM


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A Standard & Poor’s demand for information tied to its claim that a U.S. lawsuit is retaliation for its downgrade of government debt should be rejected, the Justice Department said.

A request by McGraw Hill Financial Inc.’s S&P unit seeking communications among former U.S. Treasury Secretary Timothy Geithner and President Barack Obama, Vice President Joseph Biden and other White House officials is a “fishing expedition,” according to a filing in federal court in Santa Ana, California.

“To target multiple requests at more than 10 high-level White House officials, even going so far as to demand, without any legitimate predicate, communications involving the President himself, is truly astounding,” Justice Department lawyers said yesterday in their request to quash the requests for documents from the U.S. and from Geithner.

The government and S&P are in the information-sharing stage of a lawsuit filed last year, in which the U.S. accused the company of lying about its ratings being free of conflicts of interest. The U.S. may seek as much as $5 billion in civil penalties for losses to federally insured financial institutions that relied on the company’s investment-grade ratings for mortgage-backed securities and collateralized-debt obligations, or CDOs.

S&P last month said Geithner had told McGraw Hill Chairman Harold W. McGraw III, in a telephone call after S&P’s downgrade of the U.S. in August 2011, that the downgrade would be met by a “response.” S&P filed new requests for communications between Geithner and the White House on Jan. 31, after the company had disclosed Geithner’s calls to McGraw in court filings, according to the Justice Department.

Before Downgrade

The government said in yesterday’s filing that its investigation of S&P started in 2009, well before the downgrade. S&P didn’t meet its burden to provide evidence that the lawsuit, alleging the credit rating company lied about the independence of its ratings, was retaliation for the downgrade, the Justice Department said.

Without such evidence, S&P isn’t entitled to the information it seeks about the Justice Department’s decision to sue and internal communications in other government offices, according to yesterday’s filing.

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.

Ed Sweeney, a spokesman for New York-based S&P, had no immediate comment on the Justice Department’s filing.

The case is U.S. v. McGraw-Hill Cos., 13-cv-00779, U.S. District Court, Central District of California (Santa Ana).

© Copyright 2014 Bloomberg News. All rights reserved.

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