In a court filing on Tuesday, the McGraw Hill Financial Inc unit
proposed holding a trial in two phases, with the first focusing on
just the 17 securities where Citigroup Inc is alleged to have
S&P said this would cover over 30 percent of alleged losses suffered
by financial institutions on the 158 securities in the February 2013
lawsuit, and limit the risk of juror confusion.
In contrast, a single trial would force jurors to balance government
claims that S&P's ratings lacked "independence" and "objectivity"
against "an overwhelming amount of information regarding the actual
securities at issue and the detailed process by which S&P determined
its ratings," S&P said.
"The government's proposed case benefits only one party: the
government," it added.
U.S. District Judge David Carter in Santa Ana, California is
expected at an April 14 hearing to consider S&P's request to split
the trial, which is now scheduled for September 2015.
A spokeswoman for the U.S. Department of Justice declined to comment
on S&P's request.
The lawsuit is one of several cases where the government has
recently used the Financial Institutions Reform, Recovery and
Enforcement Act ("FIRREA"), passed after the 1980s savings and loan
scandal and carrying a 10-year statute of limitations, to address
alleged misconduct causing the 2008 financial crisis.
In the lawsuit, the government accused S&P of hurting banks and
credit unions by inflating ratings to win more fees from issuers,
and being too slow to downgrade debt backed by souring
Jeffrey Manns, an associate professor at George Washington
University Law School, said S&P's tactics may be a "clever hedging
strategy" in which the results of an initial trial could prompt
either side to try to settle for well under $5 billion.
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He also said: "S&P may be engaging in cherry picking, by focusing on
what it may consider the weaker part of the government case, and
denying the government a landmark verdict. This lawsuit is a test
case about the contours of FIRREA. If the government loses the first
part, then it may not have a foot to stand on in the rest of this
case, or in similar cases."
S&P has complained that the government sued in retaliation for its
2011 decision to strip the United States of its "triple-A" rating, a
downgrade that it said was prompted by concern about Washington's
ability to manage the country's debt.
U.S. officials have said there was no connection between the lawsuit
and the downgrade, and that the downgrade was based on a $2 trillion
math error by S&P. The government did not sue S&P's main rivals,
Moody's Investors Service and Fitch Ratings.
The case is U.S. v. McGraw-Hill Cos et al, U.S. District Court,
Central District of California, No. 13-00779.
(Reporting by Jonathan Stempel; editing by Bernard Orr)
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