Standard & Poor’s Halts PA’s Ratings Grievance

(CN) - Consolidating claims over the allegedly inflated Standard & Poor's ratings of mortgage-backed securities may take precedence over Pennsylvania's lawsuit, a federal judge ruled.

The attorneys general of several states and the District of Columbia sued McGraw-Hill and its subsidiary, Standard & Poor's Financial Services, earlier this year, alleging that they defrauded investors in structured financial products known as residential mortgage-backed securities and collateralized debt obligations, thereby misrepresenting the independence and objectivity of their credit ratings process.

They accused the agency of having violated state-consumer protection and unfair trade-practices laws, causing federally insured financial institutions and other investors to lose billions of dollars.

Pennsylvania Attorney General Kathleen Kane filed a separate complaint in state court, alleging violations of the state's Unfair Trade Practices and Consumer Protection Law.

The defendants removed that action to federal court on March 6. They claimed that the state is ineligible for an injunction under the complex federal regulatory scheme known as the Credit Rating Agency Reform Act.

As they also fight to consolidate and transfer all of the related actions to the Southern District of New York for pretrial proceedings, they moved to stay the Pennsylvania case.

U.S. District Judge Christopher Conner ordered the stay on April 5, refusing to let Pennsylvania remand the matter to state court.

Finding that jurisdictional issues will be "similar, if not identical," in the claims of other states subject to transfer, the court tossed aside Pennsylvania's claim that the issue of subject-matter jurisdiction takes precedence over demands for a stay.

"To be clear, the court concludes that it would be a waste of judicial resources to proceed with the instant matter when the JPML is considering the consolidation of 17 identical cases," Conner wrote. "As discussed supra, one court should adjudicate the uniform jurisdictional issues presented in these cases as well as any other pre-trial motions to prevent inconsistent judgments on highly complex issues."

Any potential prejudice to Pennsylvania and the delay does not outweigh the harm of denying a stay, the 12-page ruling says.

"The commonwealth may suffer temporary prejudice in the form of a delay pending resolution of the motion to transfer, but this temporary inconvenience may ultimately result in significant benefits to plaintiff should the JPML transfer the case," Connor wrote. "The commonwealth would have the benefit of coordination with other states in litigating those pretrial matters as well as the protection inherent in a uniform resolution of pretrial issues. Denial of the stay would prejudice the defendants who would be forced to litigate 16 separate actions simultaneously. The costs and loss of resources associated with such an undertaking are obvious."

The judge said that the stay will only be in effect until the panel issues a ruling on transferring the matter, which the parties anticipate in approximately 60 to 90 days.

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