S&P’s Defense: “We Weren’t Really Serious”

In response to a DOJ civil lawsuit that the company committed fraud when it asserted that its ratings were independent and objective, Standard and Poor’s Rating Services has claimed that the assertions were mere “puffery.”

Whether or not the argument is legally viable, the Wall Street Journal notes that the position degrades the reputation of the firm. See Jeanette Neumann, “S&P Has Unusual Defense,” Wall St. J., Apr. 22, 2013, p. C1. In the Wall Street Journal article, Samuel Buell, a law professor at Duke University, questioned what the point of a rating agency is if the firm contends that its ratings are “puffery.”

Forms of mere “puffery” generally include comments by businesses that they are “the best in town,” and have “the lowest prices.” Judges have long regarded these types of assertions as a form of permitted boasting by businesses and upon which a fraud claim cannot be made. However, if the ratings agencies contend that their ratings should be regarded as mere “puffery,” then, as Prof. Buell notes, one has to wonder why rating agencies even exist? S&P seems to be carrying out a legal Houdini act – claiming in court that their representations are not to be depended upon, but on Wall Street that their comments are credible and important. We will see if the street remembers the rating agency’s courtroom assertions.