Editor: David Reiss
Brooklyn Law School

May 30, 2013

Standard & Poor Puffery

By David Reiss

The Department of Justice filed its opposition to S&P’s Motion to Dismiss the federal government’s FIRREA lawsuit.  At this stage of the litigation, it appears as if the key issue is whether S&P’s alleged misrepresentations about its business practices are actionable false statements or are mere “puffery” as S&P’s lawyers describe them in their brief (passim).  Let’s put aside the fact that describing your professional standards, principles and guidelines as “puffery” seems like a very bad long-term strategy (imagine the line of questioning at a Congressional hearing about S&P’s role as a Nationally Recognized Statistical Rating Organization).

But putting that cringer aside, S&P does raise a legitimate legal issue which relies heavily on Boca Raton Firefighters and Police Pension Fund v. Bahash, 12-1776-cv (2d Cir. Dec. 20, 2012). In that case, the Court of Appeals for the Second Circuit affirmed the trial court’s dismissal of the plaintiffs-investors’ claims because S&P’s statements regarding the “integrity and credibility and the objectivity of” its ratings were “the type of mere ‘puffery’ that we have previously held to be not actionable.” (6)

DoJ responds that “S&P rests its “’puffery’ defense primarily on [Boca] an unpublished, out-of-circuit opinion addressing securities fraud claims by S&P shareholders.” (opposition brief at 7). These are not substantive critiques of the Boca opinion, of course, so the 9th Circuit could well find the reasoning compelling.

But DoJ further argues that “the focus of the action here is the effect of S&P’s statements not on S&P shareholders [as in Boca], but on investors in the RMBS and CDOs S&P rated.  This is a crucial difference.” (Id.)

Will Judge Carter agree?

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