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S&P Loses Bid to Throw Out California’s False-Claims Suit

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Aug. 15 (Bloomberg) -- McGraw Hill Financial Inc. and its Standard & Poor’s unit lost a bid to throw out a false claims lawsuit brought by California to recover losses to state pension funds that relied on the company’s credit ratings.

California Superior Court Judge Curtis Karnow in San Francisco yesterday overruled the companies’ demurrer to the lawsuit.

McGraw Hill and S&P had argued that California’s lawsuit didn’t meet the requirements of a false-claims case. S&P wasn’t the seller and didn’t present any claims for payment, and the case was filed too late, the companies said.

“I can infer from the complaint that S&P ‘caused’ PERS and STRS to purchase the securities,” the judge said in his order, referring to two state pension funds. “This is good enough for present purposes.

The California Public Employees’ Retirement System and the California State Teachers Retirement System lost about $1 billion after the housing market collapsed in 2007 and the securities backed by residential mortgages were downgraded to junk status, California Attorney General Kamala Harris said after her office filed the complaint on Feb. 5.

‘‘The court was required to accept the allegations as true for purposes of this motion,’’ Catherine Mathis, a spokeswoman for New York-based S&P, said in an e-mail. ‘‘We will continue to vigorously defend the case on the merits and pursue its dismissal.’’

The U.S. Justice Department seeks as much as $5 billion in civil penalties in a separate lawsuit over S&P’s mortgage securities ratings.

U.S. District Judge David Carter in Santa Ana, California, on July 16 denied S&P’s request to throw out the government’s complaint without ruling on the merits of the allegations. The Justice Department in its complaint met the legal standards to proceed with its fraud claims, the judge said.

The case is the People v. McGraw-Hill Cos., CGC-13-528491, San Francisco County Superior Court.

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net

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

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