Standard & Poor’s suffered a defeat in litigation accusing it of issuing misleading credit ratings prior to the 2008 financial crisis. A federal judge ruled that lawsuits by 16 U.S. states and Washington, D.C. belong in state courts, not federal court.
The decision by U.S. District Judge Jesse Furman in Manhattan may raise the McGraw Hill Financial Inc unit’s costs to defend itself and exposes it to a greater risk of multiple judgments, conflicting rulings and higher legal bills. In their lawsuits, the states accused S&P of fraudulently representing that its ratings of structured finance securities were objective and not tainted by conflicts of interest. Many of the challenged ratings were for collateralized debt obligations and other mortgage-backed securities whose value plunged during the nation’s housing and credit crises.
Most of the lawsuits were filed in February 2013, when the U.S. Department of Justice sued S&P for $5 billion in a California federal court. That lawsuit remains pending.
The decision means Arizona, Arkansas, Colorado, Delaware, Idaho, Indiana, Iowa, Maine, Mississippi, Missouri, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee and Washington may pursue claims in their courts that S&P violated state consumer protection and deceptive trade practice laws.