McGraw Hill Financial Inc. (MHFI)’s Standard & Poor’s unit may be allowed to seek information from former U.S. Treasury Secretary Timothy Geithner related to what the company said was a “threatening” call he made to Harold W. McGraw III after S&P’s downgrade of U.S. debt in 2011.
U.S. District Judge David Carter, at a hearing today in Santa Ana, California, said he’s concerned why Geithner would have made the call to McGraw Hill’s chairman, three days after the downgrade, other than for it to have a “chilling effect.” The judge didn’t issue a final ruling on S&P’s request before taking a recess.
“Why is Geithner calling,” Carter said. “What is he doing on the phone?”
S&P is seeking information from Geithner to argue it was singled out because of the downgrade in a Justice Department fraud lawsuit filed last year that accused the company of lying about its ratings being free of conflicts of interest. The firm has said it provided the same credit ratings as Moody’s Corp. and Fitch Ratings on residential mortgage-backed securities and collateralized debt obligations before the credit crisis and was the only ratings company to downgrade the U.S. debt.
The Justice Department has said it may seek as much as $5 billion in penalties for losses to federally insured financial institutions that relied on New York-based S&P’s ratings prior to the collapse of the U.S. housing market that wiped out the value of many of the securities.
McGraw said in a January court filing that Geithner called to inform him that the government would respond to the downgrade. Geithner made the “angry” call right after he met with President Barack Obama, according to S&P.
The U.S. has said the downgrade was based on a $2 trillion error by New York-based S&P and has denied any connection between the downgrade and its investigation of S&P, which it said started two years before the downgrade.
Floyd Abrams, a lawyer for S&P, told Carter today that the company seeks the evidence to argue that the lawsuit should be dismissed because of government misconduct.
The judge said that allowing S&P to seek the information from Geithner doesn’t mean he will allow it to be admitted as evidence in a trial. Carter told Abrams he’s not going to dismiss the case for government misconduct before the question of S&P’s liability has gone before a jury.
“Geithner, even if you depose him, may never come before an American jury,” Carter told Abrams.
The case is U.S. v. McGraw Hill Financial Inc., 13-cv-00779, U.S. District Court, Central District of California (Santa Ana).
To contact the reporter on this story: Edvard Pettersson in Federal court in Santa Ana at