The U.S. government is resisting an effort by Standard & Poor's to move to the federal level a string of lawsuits by states that charge the ratings agency with misleading investors.
S&P, in papers filed on March 25 with the U.S. District Court in Hartford, Conn., asked the court to take over a suit brought against the company by the state's attorney general, George Jepsen. Officials in 17 states and the District of Columbia have charged S&P with rating securities backed by residential mortgages more highly than they should have been in the run-up to the financial crisis.
The ratings agency argues that the state lawsuits overlap with charges against the company by the Justice Department in a lawsuit filed in February. The cases allege "virtually identical factual and legal theories that seek to regulate S&P's conduct in the very areas that are at the heart of the federal regulatory scheme," S&P wrote.
On Friday the Justice Department pushed back, charging in court papers that S&P failed to sufficiently support its request. "Based on the nature of the causes of actions alleged by the states…there is no federal-question jurisdiction justifying removal" Justice officials wrote.
An S&P spokesperson referred a request for comment to the company's court filing. It was not immediately clear when the court might rule on S&P's request.
A DOJ official did not respond immediately to a request for comment on its filing, which was first reported by Reuters.
The cases are proceeding concurrently in both state and federal forums. In its lawsuit, filed in the U.S. District Court in Los Angeles, Justice alleges that federally insured financial institutions lost billions of dollars through investments in mortgage-backed securities and collateralized debt obligations rated by S&P over a three-year period starting in 2004. S&P inflated ratings to win business from investment banks that sold the securities, Justice says.
Connecticut and other states have charged the ratings agency with violations of laws governing unfair trade practices.
S&P, which has said DOJ's charges lack merit, is asking the federal courts to consolidate the state cases in the U.S. District Court in Manhattan while seeking to move individual state filings to federal court in the respective states. The state lawsuits "seek to replace the carefully crafted federal regulatory regime with a patchwork of state measures, each of which would have the likely effect of becoming de facto national regulation since ratings are generated, published and used on national basis," S&P wrote in court papers filed on March 8.
Jepsen in Connecticut, who sued S&P and Moody's in 2010 for allegedly issuing ratings tinged by their desire to earn fees, has opposed S&P's effort to move the case.