Standard & Poor’s mere puffery

Matt Taibbi in Rolling Stone looks at why Standard & Poor’s claims of integrity, independence and transparency are perhaps not worth very much.

In the case Boca Raton Firefighters and Police Pension Fund v. Bahashthe Second Circuit ruled that the plaintiffs suing S&P could not make a fraud claim based upon the company’s reassurances in its Code of Conduct of its “objectivity, integrity and independence.”

Moreover, the Court said, plaintiffs could not make a claim based on a public statement by S&P touting its “credibility and reliability,” or another saying, “[S&P] has a longstanding commitment to ensuring that any potential conflicts of interest do not compromise its analytical independence.”

Why, you might ask, could one not make a fraud claim based upon those statements? Because, the Second Circuit ruled, those statements were transparently not meant to be taken seriously. The following passage is a summary written by S&P’s own lawyers describing the Second Circuit ruling (emphasis mine):

The Second Circuit affirmed the district court’s dismissal of the plaintiffs’ claims in their entirety, finding that the statements concerning the “integrity and credibility and the objectivity of S&P’s credit ratings” were exactly “the type of mere ‘puffery’ that we have previously held not to be actionable.”

More from that same memo from S&P’s lawyers:

The Court found . . . that “generalizations about [S&P’s] business practices and integrity” were “so generalized that a reasonable investor would not depend on [those statements]. . . .”

Because S&P’s statements about its objectivity, independence and integrity are the sort of vague, general statements that courts both within and outside this Circuit have found insufficient to support a fraud action, the Government’s first “alleged scheme to defraud” fails.

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