Bloomberg News

Geithner Must Give S&P Documents in U.S. Fraud Suit Over Ratings

May 14, 2014

Ex-U.S. Treasury Secretary Timothy Geithner must comply with Standard & Poor’s demand that he provide documents related to its claim the U.S. sued the company in retaliation for downgrading government debt.

Harold W. McGraw III, chairman of S&P parent McGraw Hill Financial Inc. (MHFI:US), said in a court statement that Geithner called him days after S&P downgraded the U.S. debt in August 2011 and told him that the company would be held accountable for it. McGraw said Geithner told him there would be a “response” for the downgrade, which the government said was based on an error.

Geithner is the highest former government official S&P has pursued for information to support its allegations. S&P, the only credit rating company sued by the Justice Department for allegedly giving fraudulent ratings to mortgage-backed securities, has said it was singled out because of the downgrade.

The Justice Department and Geithner have denied there is a connection between the downgrade and the lawsuit filed last year. The government has said it may seek as much as $5 billion in civil penalties from S&P for losses to federally insured financial institutions that relied on its ratings for mortgage-backed securities and collateralized-debt obligations, or CDOs, that lost value after the housing market collapsed.

The call to McGraw took place right after Geithner had met with President Barack Obama, S&P said in February.

Sufficient Evidence

U.S. District Judge David Carter yesterday denied Geithner’s request to set aside S&P’s subpoena as well as a similar request by the Federal Reserve Bank of New York and Terrence Checki, the bank’s executive vice president. The judge said S&P had provided sufficient evidence of an “improper purpose” at this point of the litigation to support its request.

“As for any future depositions of Secretary Geithner or Mr. Checki, the court will cross that bridge when it comes to it,” Carter said.

Jenni LeCompte, a spokeswoman for Geithner, declined to comment on yesterday’s ruling, referring to a January statement that the allegation Geithner threatened S&P or prompted any retaliatory action was false.

Geithner, 52, is now president of Warburg Pincus LLC, a private equity firm in New York. In 2008, as New York Fed president, he was instrumental in decisions to bail out insurer American International Group Inc. and to allow Lehman Brothers Holdings Inc. to fail.

Geithner’s Test

In his new book “Stress Test: Reflections on Financial Crises,” published May 12, he recounts his experience as Treasury Secretary in Obama’s first term and one of the key officials grappling with the worst financial crisis since the Great Depression.

Carter last month said S&P could seek potential evidence from the Justice Department for its so-called retaliation defense, stopping short of allowing the company to ask for White House records of conversations around the time of the downgrade. The judge said in that ruling that there was circumstantial evidence of discriminatory intent.

“Secretary Geithner’s statements are susceptible to several interpretations and it is unclear whether there is a nexus between his displeasure and the Department of Justice’s litigation decisions,” the judge said last month. “But, such open questions are properly answered after, not before, discovery.”

The case is U.S. v. McGraw-Hill Cos., 13-779, U.S. District Court, Central District of California (Santa Ana).

To contact the reporter on this story: Edvard Pettersson in Federal court in Los Angeles at

epettersson@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Douglas Wong


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Companies Mentioned

  • MHFI
    (McGraw Hill Financial Inc)
    • $79.47 USD
    • 0.37
    • 0.47%
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