S&P cites Obama meeting in filing

It says timing key in reprisal claim

Standard & Poor’s said a 2011 meeting between President Barack Obama and his Treasury secretary at the time just before the company was warned to expect a response to its downgrade of U.S. debt justifies its request to see White House communications to defend itself against fraud claims.

The timing of Obama’s conference with Treasury Secretary Timothy Geithner may support S&P’s claim that the Justice Department’s fraud lawsuit against it last year was retaliation, the company said in a filing Monday in federal court in Santa Ana, Calif. The meeting, listed in Geithner’s calendar records, came immediately before Geithner voiced his “anger” about the downgrade in a phone conversation with McGraw Hill Financial Inc. Chairman Harold McGraw III, according to S&P.

The government seeks as much as $5 billion in civil penalties for losses to federally insured banks and credit unions that relied on S&P’s claims that its ratings of residential mortgage-backed securities and collateralized debt obligation before the collapse of the U.S. housing market were free of conflicts of interest.

S&P has said it gave the same ratings as Moody’s Corp. to those securities and was singled out by the Justice Department because it was the only credit-rating company to downgrade the U.S. in August 2011. Geithner met with Obama the morning of Aug. 8, 2011, three days after the downgrade, S&P said in its filing.

“Immediately after his meeting with the president, Secretary Geithner returned to his office and, at 10:15 a.m., he called Mr. McGraw personally,” S&P said, citing Geithner’s calendars available on the Treasury Department’s website. The calendar entries don’t reflect what Obama and Geithner discussed.

“On that call, Secretary Geithner stated to Mr. McGraw that S&P had done an ‘enormous disservice to yourselves and to your country,’” according to the filing.

The Justice Department said last month that S&P’s quest for White House records was a “fishing expedition” and urged U.S. District Judge David Carter to deny the New York-based rating company’s request to force the government to hand over the information.

The government alleged in its Feb. 4, 2013, complaint that S&P knowingly downplayed the risk on securities before the credit crisis to win business from investment banks seeking the highest possible ratings to help them sell the instruments. The Justice Department has denied any connection between the downgrade and the lawsuit.

Ellen Canale, a spokesman for the Justice Department, had no immediate comment on Monday’s filing. Jay Carney, White House press secretary, didn’t immediately respond to an email seeking comment.

“The allegation that former Secretary Geithner threatened or took any action to prompt retaliatory government action against S&P is false,” said Jenni LeCompte, a spokesman for Geithner.

S&P said in a January filing that it seeks information about any government analyses or studies of the independence and objectivity of all rating services, about fraud investigations of issuers of mortgage backed securities it rated, and about the Justice Department’s decision to sue S&P.

The government said in a Feb. 17 filing that its investigation of S&P started in 2009, well before the downgrade. S&P didn’t meet its burden to provide evidence that the lawsuit, alleging the credit-rating company lied about the independence of its ratings, was retaliation for the downgrade,the Justice Department said.

Without such evidence, S&P isn’t entitled to the information it seeks about the Justice Department’s decision to sue and internal communications in other government offices, according to the Feb. 17 filing.

The case is U.S. v. McGraw Hill Financial Inc., 13-779, U.S. District Court, Central District of California (Santa Ana).

Information for this article was contributed by Angela Greiling Keane of Bloomberg News.

Business, Pages 25 on 02/26/2014

Upcoming Events