S&P White House Records Demand Called Fishing Expedition

Standard & Poor’s shouldn’t get to see communications among White House officials including President Barack Obama to try to back its claim that the U.S. sued the company to retaliate over a government debt downgrade, the Justice Department said.

A request by the McGraw Hill Financial Inc. unit for records of discussions among former U.S. Treasury Secretary Timothy Geithner and Obama, Vice President Joseph Biden and other officials is a “fishing expedition,” according to a filing in federal court in Santa Ana, California.

“To target multiple requests at more than 10 high-level White House officials, even going so far as to demand, without any legitimate predicate, communications involving the president himself, is truly astounding,” Justice Department lawyers said yesterday in their request to quash the requests for documents from the U.S. and from Geithner.

The government and S&P are in the information-sharing stage of a lawsuit filed last year, in which the U.S. accused the company of lying about its ratings being free of conflicts of interest. The U.S. may seek as much as $5 billion in civil penalties for losses to federally insured financial institutions that relied on the company’s investment-grade ratings for mortgage-backed securities and collateralized-debt obligations, or CDOs.

S&P last month said Geithner had told McGraw Hill Chairman Harold W. McGraw III, in a telephone call after S&P’s downgrade of the U.S. in August 2011, that the downgrade would be met by a “response.” S&P filed new requests for communications between Geithner and the White House on Jan. 31, after the company had disclosed Geithner’s calls to McGraw in court filings, according to the Justice Department.

Before Downgrade

The government said in yesterday’s filing that its investigation of S&P started in 2009, well before the downgrade. S&P didn’t meet its burden to provide evidence that the lawsuit, alleging the credit rating company lied about the independence of its ratings, was retaliation for the downgrade, the Justice Department said.

Without such evidence, S&P isn’t entitled to the information it seeks about the Justice Department’s decision to sue and internal communications in other government offices, according to yesterday’s filing.

Ed Sweeney, a spokesman for New York-based S&P, repeated the comany’s claim that the government lawsuit over the downgrade runs afoul of its constitutional right to free speech.

First Amendment

“The First Amendment has long protected those who have criticized the government or offered opinions not to its liking from retaliation aimed at punishing them,” Sweeney said in an e-mailed statement. “We fully expect that the government’s decision to sue S&P after and because of its downgrade of the United States will be one of many issues that will remain in this case for ultimate resolution by the courts.”

In its request last month to compel the Justice Department to hand over the evidence, S&P said it seeks information about any government analyses or studies of the independence and objectivity of all rating services, about fraud investigations of issuers of mortgage-backed securities it rated, and about its decision to sue Standard & Poor’s.

Three Companies

S&P said the government was initially investigating all three major credit rating companies, including Moody’s Corp., and focused on S&P exclusively after the McGraw Hill unit downgraded U.S. debt.

In his court statement, McGraw, 65, said Geithner called him on Aug. 8, 2011, after S&P was the only credit ratings company to downgrade the U.S. debt. Geithner, McGraw said, told him that S&P would be held accountable for the downgrade. Government officials have said the downgrade was based on an error by S&P.

The government alleged in its Feb. 4, 2013, complaint that S&P knowingly downplayed the risk on securities before the credit crisis to win business from investment banks seeking the highest possible ratings to help them sell the instruments.

The case is U.S. v. McGraw-Hill Cos., 13-cv-00779, U.S. District Court, Central District of California (Santa Ana).

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