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July 10, 2013 at 6:13 AM

S&P’s “puffery defense”

Standard & Poor’s Corp. is hauled in to court by the Justice Department over the high ratings it issued on billions of dollars of investment securities that turned out toxic. One of the government’s arguments is that S&P said its ratings of securities were independent, professional, objective, etc., and in many cases they were demonstrably not. Now S&P’s defense is that it is unfair to hold it accountable for its statements about itself, because they were mere corporate puffery.

Well, if you say so.

In its lawsuit, the federal government is asking for $5 billion. I can understand in such a case why a company would say just about anything to avoid having to pay. And there is a “puffery defense.” In 2005 it worked for Ford Motor Co. in a shareholder lawsuit over the faulty Bridgestone tires on Ford Explorers, and Ford’s slogans about its pursuit of quality. The implication of the puffery defense was bad enough for Ford, when the issue was about a tire on one line of vehicles. But with S&P, this is about its core business. Its product is judgment, and its reputation for independence and professionalism is all it has. To tell a U.S. District Court that these things are puffery is a public declaration of moral bankruptcy, in the hope that the court will buy it but its customers will not.

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