|Judge unlikely to dismiss suit against S&P||| Print ||
|Written by GREG RISLING, Associated Press|
|Tuesday, 09 July 2013 06:33|
SANTA ANA, Calif. (AP) — A California judge indicated Monday that he will reject a motion to dismiss a $5 billion civil fraud lawsuit against the credit ratings agency Standard & Poor's.
U.S. District Judge David Carter issued a tentative ruling, which wasn't immediately made publicly available. Carter mentioned in court about the case going forward but gave pause to his decision and said he would need some time to reflect upon it.
"I have to back up and really take a look at this," Carter said. A final decision was expected by July 15.
Both sides declined to comment after the hearing.
S&P, a unit of New York-based McGraw-Hill Cos., wants the suit filed by federal prosecutors earlier this year tossed, arguing that the lawsuit is too broad without providing enough specific examples of the alleged fraud.
"They never make the who, what, how allegations," lawyer John Keker said.
In its lawsuit, the Obama administration accused S&P of refusing to warn investors about the collapsing housing market in 2006 and inflating its ratings of risky mortgage investments. The government said S&P didn't move quickly enough to issue a mass downgrade of subprime-backed securities.
High ratings from the three major credit rating agencies made it possible for banks to sell trillions in risky investments. Some investors can buy only securities that carry high credit ratings.
The lawsuit alleges S&P recognized home prices were sinking and borrowers were having a difficult time repaying loans. But those facts weren't reflected in the ratings the agency gave to complex real-estate investments known as mortgage-backed securities and collateralized debt obligations, prosecutors said.
"They weren't doing what they said they were doing," Assistant U.S. Attorney George Cardona said of S&P.
The government said S&P didn't move quickly enough to issue a mass downgrade of subprime-backed securities. But S&P attorneys question why other agencies that issued identical ratings before one of the nation's worst financial crisis weren't sued.
"We don't understand the distinction," Keker said.
The civil case, which seeks $5 billion in penalties, is the Obama administration's most aggressive action against those who were deemed responsible for the recession, following years of criticism that the government didn't do enough.
Copyright 2013 The Associated Press.