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Tags: Abrams | S&P | ratings | fraud

S&P Attorney Abrams to Moneynews: ‘There Was No Fraud’

By    |   Monday, 25 February 2013 05:34 PM EST

Standard & Poor’s didn’t commit fraud or intentional misconduct, according to Floyd
Abrams, the firm’s attorney.

The government alleges that S&P engaged in a scheme to defraud investors in structured
financial products, claiming its ratings misrepresented the risks involved. The Department
of Justice claims S&P issued ratings on complex securities related to the mortgage industry, including residential mortgage backed securities and collateralized debt obligations (CDOs), that it knew were inaccurate and continued to do so.

“The basic allegation is false,” Abrams, a partner at Cahill Gordon & Reindel, told Newsmax TV in an exclusive interview. “There was no fraud. There was no intentional misconduct.”

Watch our exclusive video. Story continues below.

Abrams said the ratings offered were made public and were the same as those issued by other agencies.

“Maybe even more important, [they] came from the same view of the market as the highest-ranking federal officials in the area, in Treasury, in the Fed, in the FDIC,” Abrams explained.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

“Everybody was more or less of the same view about where the housing market was and
where it was going and what most people, just about everybody, thought was going to
happen. It was much worse than had been predicted, but that’s not fraud.”

While there have been reports of emails depicting gallows-type humor at the firm, with one employee creating a parody of the Talking Heads song “Burning Down the House,” Abrams noted, “The reality is that in any large institution … people disagree with each other and they argue and they sometimes use overheated language.

“They sometimes make fun of things. I can assure you that if you check the emails of any large institutions, including journalistic ones, you’d find stuff you’d rather not have on the front page. And that’s the situation here.”

Previously, S&P has stated its ratings are opinions and are protected by the First Amendment, but Abrams will not be using the First Amendment as part of his defense. “We do believe, and I’m very confident, that ratings are generally protected by the First
Amendment,” he explained.

“The one time they’re not protected, though, is if they or anyone else who voices an opinion doesn’t believe it at all. The Department of Justice is saying these weren’t your opinions. When the Department of Justice says there was fraud, our first answer is there was no fraud. If there was no fraud, then there was no liability.”

While some criticize that there is a conflict of interest within ratings agencies since an issuer asking for a rating is also paying S&P for that rating.

However, “This is not something that is hidden. The SEC has been involved with this, known about it for years. The public, anyone with any sophistication, knows about it. It is announced, it is well-known because, among other reasons, Standard & Poor’s makes it well-known,” Abrams noted.

“The people that do the ratings, the analysts, are physically separated from the other employees.”

The suit does not target other ratings agencies, but it was S&P that also downgraded the U.S. credit rating.

“Is it striking? Is it notable? Sure it is,” Abrams stated. “We had a situation in which the CDOs that are at issue had to have two ratings on them. The ratings were identical by S&P and Moody’s or S&P and Fitch. The Department of Justice is saying we, S&P, my client, did this out of elicit motives and the others didn’t.

“What they’re also ignoring is that, beyond the rating agencies, that the exact same view of the real estate situation of where it was going, how fast it was going, how likely it was to persist, all of these matters were a situation in which the raters at S&P shared a common view with the officials in Washington.”

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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Standard & Poor's didn't commit fraud or intentional misconduct, according to Floyd Abrams, the firm's attorney.
Monday, 25 February 2013 05:34 PM
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