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S&P says DOJ filed suit 'in retaliation' for ratings drop

By Jessica M. Karmasek | Sep 5, 2013

LOS ANGELES (Legal Newsline) -- The McGraw-Hill Companies Inc. and its subsidiary Standard & Poor's Rating Services argue, in a federal court filing this week, that the U.S. Department of Justice's lawsuit against the ratings agency was filed "in retaliation" for its downgrade of the nation's credit rating in 2011.

"Plaintiff commenced this action in retaliation for Defendants' exercise of their free speech rights with respect to the creditworthiness of the United States of America. Such free speech is protected under the First Amendment to the United States Constitution and the retaliation, causing and embodied in the commencement of this impermissibly selective, punitive and meritless litigation, is unconstitutional," lawyers for the credit ratings agency wrote in a 72-page answer, filed in the U.S. District Court for the Central District of California Tuesday.

The agency's lead attorney is John Keker of San Francisco-based Keker & Van Nest, who once represented prominent Mississippi attorney Richard "Dickie" Scruggs.

"Only S&P Ratings downgraded the United States and only S&P Ratings has been sued by the United States, even though the S&P ratings challenged by the United States were no different than those of at least one other rating agency and other rating agencies have made the same assertions of 'independence' that are challenged in the Complaint as against S&P," Keker wrote.

Click here to read Standard & Poor's complete answer.

In August 2011, following the enactment of the Budget Control Act, Standard & Poor's lowered the nation's sovereign long-term credit rating from AAA to AA+.

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," the agency said in a press release at the time.

In its suit, filed in February, the government contends that Standard & Poor's inflated mortgage investment ratings and set them up for a crash.

The agency counters that its claims about its ratings process weren't meant to be taken seriously be investors, and filed a motion to dismiss the suit in April.

However, Judge David O. Carter refused to dismiss the suit in a July ruling and blasted the credit rating agency's "puffery" defense.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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