Victories by Connecticut and Illinois in lawsuits against Standard & Poor’s over ratings on securities will bolster other state cases, attorneys general for those two states said.
Illinois and Connecticut defeated attempts by S&P to throw out their lawsuits, which were filed before the U.S. Justice Department and other states sued the company this month. Those decisions undercut a free-speech defense S&P has relied on, Illinois Attorney General Lisa Madigan and Connecticut’s George Jepsen said.
“There’s no reason they shouldn’t hold up to scrutiny in other states,” Madigan said about the state claims yesterday in an interview at a conference of state attorneys general in Washington.
The U.S. sued New York-based S&P and parent McGraw-Hill Cos. (MHP) Feb. 4, accusing S&P of disregarding the credit risks of mortgage bonds during the housing boom to win business rating securities. In addition to the U.S., at least 17 states have sued the company.
Thirteen states and the District of Columbia joined the Justice Department in suing S&P, according to a statement from Jepsen’s office. Connecticut, Illinois and Mississippi previously filed complaints against the company. South Carolina sued on Feb. 13, according to a copy of the complaint.
Iowa Attorney General Tom Miller, who is among the state officials suing S&P, said in an interview that states are sharing information about legal theories and evidence.
S&P has called the U.S. and state lawsuits meritless and has said it will fight them.
The credit rater has been able to defeat claims from investors by arguing that its grades are protected free speech. A state court judge in Chicago rejected S&P’s argument that its alleged misrepresentations were opinions, making them speech protected by the U.S. Constitution’s First Amendment, and refused to dismiss the Illinois case.
“It’s not a First Amendment case because the government is alleging that S&P didn’t believe what it said,” S&P attorney Floyd Abrams said about the U.S. lawsuit in an interview this month with Bloomberg Television. “The First Amendment doesn’t protect against that.”
Madigan said more states will sue S&P. Massachusetts Attorney General Martha Coakley and New York Attorney General Eric Schneiderman are conducting investigations of the company. Coakley declined to comment about the state’s investigation.
Nevada Attorney General Catherine Cortez Masto said in an interview at the conference that her state is prevented from suing S&P because the time for bringing claims has expired.
The state is looking into whether “there are other legal avenues for us to take action against the rating companies,” she said.
The free-speech defense won’t work in the state cases, Madigan and Jepsen said in separate interviews at the conference.
“Their principal line of defense has been ruled not relevant in both Connecticut’s and Illinois’s cases,” Jepsen said.
Illinois sued under the state’s consumer fraud laws, alleging the company claimed its work was objective when in fact there is “overwhelming evidence” their ratings were influenced by business considerations, Madigan said.
“That’s fraud,” she said. “You can’t use the protections of the First Amendment when you’re lying.”
The U.S. case is U.S. v. McGraw-Hill, 13-00779, U.S. District Court, Central District of California (Los Angeles).