The Securities Litigation Expert Blog

S&P Defense on Ratings Case: We Are Biased and Incompetent

Posted by Jack Duval

Apr 25, 2013 2:55:05 AM

Standard and Poor's has made an eyebrow-raising motion to dismiss in response to the Justice Department's case against it.  (Bloomberg) Essentially, the defense attacks the fraud claim against it by saying that S&P's advertising and promotional materials should never have been believed:







“By their nature,” however, “these kinds of statements are not actionable,” S&P’s lawyers contend. The promotional rhetoric amounts to “classic puffery,” the defense adds. “Such statements are too general to serve as the basis of a fraud claim.” A “reasonable investor” would not rely on the statements in deciding whether to trust S&P’s ratings, according to the agency. In other words: Only a sap would believe the nice things we say about our work.

To follow the logic then:  if we claimed that we were independent and an expert in credit ratings, indices, risk evaluation and research - that was all a lie and you were a fool for believing us.  In fact, we were biased and incompetent.

Amazingly, this defense has worked in other cases against S&P.



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Topics: ratings agencies, litigation, investments, S&P, regulation.

Study Shows AAA CDOs Were Structured to BBB Support

Posted by Jack Duval

Mar 5, 2013 2:39:10 AM

A paper published in the Journal of Finance shows that AAA tranches were inflated 12.1% over published guidelines and that, on average, the AAA tranches analyzed were structured to BBB support levels.  (JoF)

For implications of this rating inflation (by S&P), see this Bloomberg article.

See our previous coverage on CDOs here and here.

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Topics: Bloomberg, litigation, investments, CDO, Journal of Finance, fixed income, S&P

Master Limited Partnerships and REITS

Posted by Jack Duval

Oct 25, 2012 4:55:31 AM

S&P CreditMatters TV has put out a video comparing MLP and REIT characteristics. (S&P)  At 8:34, it's not too in-depth, but for those of you wanting a quick introduction, it's useful.

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Topics: Master Limited Partnerships, MLP, CreditMatters, investments, REIT, video, S&P

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