Standard & Poor’s Fraud Case Booted Back to State

     CHICAGO (CN) – Standard & Poor’s must fight claims that it misrepresented the objectivity of its financial ratings in Illinois state court, a federal judge ruled.
     Illinois Attorney General Lisa Madigan had one of the state officials to sue Standard & Poor’s Financial Service, and its corporate parent, the McGraw-Hill Cos., in January for “systematically misrepresenting that its credit analysis of structured finance securities was objective, independent and not influenced by either S&P’s or its clients’ financial interests.”
     “By at least 2001, S&P’s desire to increase revenue and market share by rating as many structured finance deals as possible led S&P to ignore the increasing risks of structured finance securities to cater to the preferences of large investment banks and other repeat issuers of structured finance securities that dominated S&P’s revenue base,” the complaint stated.
     Though Madigan filed suit in Cook County Court, the defendants removed it to the Northern District of Illinois.
     U.S. District Judge Matthew Kennelly remanded the case back to state court Thursday, finding S&P’s notice of removal untimely.
     “There is no discernible basis in the record to support a determination that defendants ‘first … ascertained’ from the [Illinois attorney general’s] February 2013 press release that this case was or had become removable,” Kennelly wrote.
     Even if the request had been timely, Kennelly found no basis for federal jurisdiction.
     “Defendants argue that determining liability under the ICFA [Illinois Consumer Fraud and Deceptive Practices Act] and the UDTPA [Illinois Uniform and Deceptive Trade Practices Act] for S&P’s allegedly fraudulent statements turns on the SEC’s regulations and therefore requires application of federal law,” the ruling states.
     “But nothing in CRARA [Credit Rating Agency Reform Act] says that the SEC defines the truth or falsity of statements made about the independence of S&P’s credit rating process; indeed, the statute provides that the SEC may not regulate the substance of credit ratings or the procedures or methodologies used to determine them,” Kennelly added.
     The federal government filed its case against S&P and McGraw-Hill in February, and several other state attorneys general made similar filings thereafter.

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