S&P Seeks Dismissal of California Claims in Ratings Case

McGraw Hill Financial Inc. (MHFI)’s Standard & Poor’s unit asked a judge to throw out California’s claims the company violated false advertising and business practices laws in rating mortgage-backed securities, its third bid to dismiss the case.

California Attorney General Kamala Harris can’t sue the company under state unfair business practices and false advertising laws because they don’t apply to securities transactions, Melvin Goldman, S&P’s lawyer, said in filings yesterday in state court in San Francisco. The state’s lawsuit also was filed too late, he said.

The California suit is one of more than a dozen brought against S&P by the U.S. and a group of states over ratings on mortgage-backed securities during the housing boom.

Harris alleged in her complaint that S&P used “guesses” and “magic numbers” to inflate ratings of mortgage-backed securities purchased by the California Public Employees’ Retirement System and the state’s teacher pension fund.

The the pension systems bought the securities because they had received AAA ratings, signaling they were very low-risk investments, Harris said. After the mortgage crisis and collapse of the housing market, the funds lost more than $1 billion on the investments, according to the lawsuit.

State Court Judge Curtis Karnow in San Francisco has twice refused to dismiss the case after S&P argued that it’s a malicious lawsuit and Harris didn’t have grounds to file it because state money wasn’t involved in the pension funds’ securities purchases. S&P has appealed his ruling on the malicious lawsuit theory.

The case is California v. McGraw-Hill Cos., CGC 13-528491, California Superior Court (San Francisco).

To contact the reporter on this story: Karen Gullo in federal court in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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