S&P, state sue each other over mortgage-backed security ratings

Tuesday, February 5, 2013 at 12:31pm

A national legal battle over the credit reporting agency Standard & Poor's Financial Services has spilled into Tennessee.

S&P filed a pre-emptive lawsuit against Tennessee Attorney General Robert Cooper on Monday, asking the U.S. District Court for the Middle District of Tennessee to issue an injunction prohibiting the state from pursuing legal action against the credit rating agency.

S&P, which is owned by McGraw-Hill Companies Inc., received a letter from Cooper threatening a lawsuit under the Tennessee Consumer Protection Act. S&P anticipated a lawsuit from the U.S. Department of Justice stemming from the agency's high pre-recession credit ratings for mortgage companies, according to Reuters. Those credit ratings, which some believe to have been inflated, played a key role in the financial crisis, according to a January 2011 Financial Crisis Inquiry Commission report.

S&P claims in the Tennessee lawsuit that their credit ratings are protected under the First Amendment.

“The Tennessee Consumer Protection Act impermissibly punishes speech and commentary protected by the First Amendment ... by permitting the imposition of liability without proof that the speech was published with knowledge of its falsity or with serious doubts as to its truth,” the suit reads.

On Tuesday morning, the state filed a complaint in Davidson County Circuit Court, mirroring similar action by the Justice Department.

“The complaint filed in state court today alleges that investors as well as others in the market were misled by Standard and Poor’s promises that its analysis was independent and objective. Unfortunately, as the complaint alleges, this was not the case, and ratings of mortgage backed securities and collateral debt obligations were influenced by the desire to continue earning lucrative fees,” Cooper said.

The state's suit "seeks relief to stop S&P from making misrepresentations to the public; change the way the company does business; and civil penalties and disgorgement of ill-gotten profits."

6 Comments on this post:

By: Jughead on 2/5/13 at 11:40

Duh. Everybody partied hard and ran for the hills when the whole scheme collapsed.

And, it was not just bankers and Wall Street types. America gorged on inflated home prices and home equity lines of credit.

By: govskeptic on 2/6/13 at 6:30

For S & P to claim first Amendment protection for this sloppy work and insider
negligence is as silly as saying it's OK for a select few to shout "Fire" in the
Theater. All the rating agencies were involved in the sloppy and dishonest ratings
they were giving these home loan bonds, but S& P has a special problem confined to
themselves. Their downgrade last year of US Credit worthiness angered this
President and his Chief Enforcer, Eric Holder. This lawsuit, like the very selective
other ones involved with some smaller banks may be a revenge and threat
warning from the all powerful government to shape up or pay the demanded price.

As to the Tenn Consumer Protection Act, it's a joke without any teeth and is presented
and passed as a feel good measure to fool the foolish voters of the state as if they
cared one bit for anyone other than the businesses of the state.

By: blitz on 2/6/13 at 10:29

Rather more like shouting that their is no fire when the theater has several

By: Jughead on 2/6/13 at 11:09

EVERYBODY knew what was going on and turned the other cheek while feasting on greed. Now, scumball politicians who helped create this mess act sanctimonious so that they get reelected.

S&P is no more guilty than the SEC, Congress, the Fed, and the entire mortgage industry. They ALL knew it would collapse.

By: Moonglow1 on 2/8/13 at 11:21

Moonglow1: it is about time someone is accountable for the mortagage mess. It started with George Bush announcing "a home for all people!" Then, Wall Street and the rating companies. Get them and put them all behind bars.

By the way, what is with these CEOs who "earn" and I use the term "earn" loosely since it should be steal, but regardless, CEOs are supposed to be in charge, but as soon as the law comes calling, they run for cover...statements like "Gee, I was not aware...." Oh right!!! Amercian's are not buying it anymore...We want you people in jail where you belong.

By: Moonglow1 on 2/8/13 at 11:21

Moonglow1: it is about time someone is accountable for the mortgage mess. It started with George Bush announcing "a home for all people!" Then, Wall Street and the rating companies. Get them and put them all behind bars.
By the way, what is with these CEOs who "earn" and I use the term "earn" loosely since it should be steal, but regardless, CEOs are supposed to be in charge, but as soon as the law comes calling, they run for cover...statements like "Gee, I was not aware...." Oh right!!! Americans’ are not buying it anymore...We want you people in jail where you belong.