The Justice Department says the suit isn’t related to the downgrade or any political decision. It says it took time to build its case that the S&P made false representations, concealed facts and manipulated ratings criteria linked to the financial instruments that helped trigger the financial crisis.
Still, the announcement of the suit puts a level of pressure on S&P that isn’t on other raters -- at least not yet. The $5 billion potential penalty would equal more than five years profit for McGraw-Hill. The company’s shares were battered last week, dropping more than 25 percent, and Fitch put its ratings on watch for possible downgrades.
The White House has declined to answer questions on the lawsuit, directing reporters to the Justice Department.
30 Million
To prepare its suit, lawyers from the Justice Department’s civil division and the U.S. attorney’s office in Los Angeles sifted through more than 30 million pages of documents, including e-mails, according to a department official briefed on the case. Interviews were conducted with more than 100 individuals, including meetings with cooperating witnesses, said the official who requested anonymity to discuss the case.
“Our lawyers and staff served hundreds of civil subpoenas, spent thousands of hours reviewing and analyzing millions of pages of documents, and contacted and interviewed over 150 witnesses, including dozens of former S&P analysts and executives,” Stuart Delery, head of the Justice Department’s civil division, said last week flanked by 7 of the 17 state and District of Columbia attorneys general who have also brought suits against the company.
Settlement Discussions
Government and S&P lawyers had multiple, extensive exchanges in the months before the filing of the lawsuit, the official said. They were unable to come to an agreement.
Two other people briefed on the case described settlement discussions, which started late last year, as unproductive in the weeks leading up to the lawsuit. By the time the case was filed, the two sides remained far apart on any agreement, said the people, who requested anonymity to discuss private talks.
Both sides say they are ready to take the case, filed in California, to court. S&P hired John Keker, the San Francisco trial attorney, who has represented investment banker Frank Quattrone and Enron Corp. executive Andrew Fastow, to join its team defending the company. Quattrone, founder of Qatalyst Partners, won dismissal of all criminal charges that he obstructed a federal investigation into Credit Suisse AG. Fastow pleaded guilty in 2004 to two counts of wire and securities fraud.