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September 9, 2013

Did DOJ File a Retaliatory Suit Against S&P?

In February, the Department of Justice filed a lawsuit accusing Standard & Poor’s of issuing misleading securities ratings before the financial crisis in 2008.  But in a recent court filing, S&P says the suit is in retaliation for downgrading the country’s credit rating in 2011.

“In a filing with the U.S. District Court in Santa Ana, California, S&P said the lawsuit attempts to punish it for exercising its First Amendment free speech rights under the U.S. Constitution, but also seeks “excessive fines” in violation of the Eighth Amendment,” Reuters reports.

And the timeline of the government’s case certainly suggests a political motive, writes the Wall Street Journal:

When the mortgage market went south, the Beltway crowd didn’t want to blame itself for forcing banks to listen to the raters. So it began to focus on how the raters had come to their decisions. And for years regulators and politicians did not single out S&P, but instead treated both S&P and Moody’s as highly culpable, with Fitch sometimes also receiving criticism…

We don’t think Justice’s dubious claims should be levelled against anyone, and its banks-as-victims argument is ludicrous. But far more troubling is that this case has the aroma of political payback. So it’s welcome news that Judge Carter is giving S&P the opportunity to conduct discovery to determine what government officials were saying to each other about this case before and after the 2011 downgrade. A deposition of Attorney General Eric Holder would be a good start.

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