Standard & Poor’s Claims Revenge Motivated DOJ Lawsuit

Standard & Poor’s has alleged that the ongoing lawsuit brought against it by the U.S. Justice Department was initiated in response to the 2011 downgrade the financial services company brought to bear on U.S. debt.

Standard & Poor's Claims Revenge Motivated DOJ Lawsuit

In a court filing picked up by The Wall Street Journal, Standard & Poors alleged that the law suit was brought against the company in “retaliation” for the downgrade of the United States’ debt back just over two years ago. The ratings agency removed the top class AAA rating from United States’ debt, moving down one place to a AA+ rating.

This Tiger Cub Giant Is Betting On Banks And Tech Stocks In The Recovery

D1 CapitalThe first two months of the third quarter were the best months for D1 Capital Partners' public portfolio since inception, that's according to a copy of the firm's August update, which ValueWalk has been able to review. Q2 2020 hedge fund letters, conferences and more According to the update, D1's public portfolio returned 20.1% gross Read More

DOJ suit unconstitutional

The filing from Standard & Poor’s said that the DOJ lawsuit was in direct retaliation to the downgrade, and that made the lawsuit unconstitutional. The filing asked for the case to be thrown out of court on that basis. According to the filing, the downgrade was an example of the company using its right for Free Speech.

“Such free speech is protected under the First Amendment to the United States Constitution and the retaliation, causing and embodied in the commencement of this impermissibly selective, punitive and meritless litigation, is unconstitutional,” said the filing made with the California court today.

The filing suggests that Standard & Poor’s will concentrate on the political elements of the lawsuit in its defense against the DOJ. The agency previously tried to have the case thrown out on the basis that the Department of Justice was misrepresenting the way the firm rated financial instruments.

That appeal to have the case thrown out was turned down in July after the judge in charge of the case, U.S. District Judge David O. Carter of California, said that the defense was “deeply and unavoidably troubling.”

Standard & Poor’s target of DOJ

The Department of Justice lawsuit was filed last February and relates to the ratings given by S&P to mortgage backed securities and other financial instruments in the years leading up to the financial crisis. The lawsuit says that S&P committed fraud by obfuscating the process by which it applied ratings to different instruments, tricking financial institutions into buying the instruments.

The Department of Justice specifically calls Standard & Poor’s out on misrepresenting the instruments to federally backed insurers and credit unions, the institutions that the government of the United States had to spend billions bailing out of financial trouble during the crisis.