Geithner Said U.S. Would Respond to Downgrade, S&P Says
By Edvard Pettersson - Jan 21, 2014 3:05 AM ET
Former U.S. Treasury Secretary Timothy F. Geithner told McGraw according to the filing, “S&P’s conduct would be looked at very carefully.” Photographer: Andrew Harrer/Bloomberg
Former U.S. Treasury Secretary Timothy Geithner told McGraw Hill Financial Inc. (MHFI) Chairman Harold W. McGraw III in 2011 that Standard & Poor’s downgrade of the U.S. debt would be met by a response, S&P said.
S&P filed a declaration by McGraw yesterday in federal court in Santa Ana, California, as part of a request to force the U.S. to hand over potential evidence the company says will support its claim that the government filed a fraud lawsuit against it last year in retaliation for its downgrade of the U.S. debt two years earlier.
In his court statement, McGraw said Geithner called him on Aug. 8, 2011, after S&P was the only credit ratings company to downgrade the U.S. debt. Geithner, McGraw said, told him that S&P would be held accountable for the downgrade. Government officials have said the downgrade was based on an error by S&P.
“S&P’s conduct would be looked at very carefully,” Geithner told McGraw according to the filing. “Such behavior would not occur, he said, without a response from the government.”
The Justice Department last year accused S&P of lying about its ratings being free of conflicts of interest and may seek as much as $5 billion in civil penalties. The government alleged in its Feb. 4, 2013, complaint that S&P knowingly downplayed the risk on securities before the credit crisis to win business from investment banks seeking the highest possible ratings to help sell the instruments.
In August 2011, S&P downgraded the U.S.’s 60-year-running AAA credit rating to AA+ with a negative outlook.
Natalie Earnest, a spokeswoman for the Treasury Department, didn’t immediately respond to an e-mail after regular business hours yesterday seeking comment on S&P’s filing. Justice Department officials have previously said the lawsuit was unrelated to the downgrade.
In its request yesterday to U.S. District Judge David Carter for an order that the Justice Department hand over the documents it seeks for its “retaliation defense,” S&P said the government was initially investigating all three major credit rating companies, including Moody’s Corp. (MCO), and focused on S&P exclusively after the McGraw Hill unit downgraded U.S. debt.
The case is U.S. v. McGraw-Hill Cos., 13-cv-00779, U.S. District Court, Central District of California (Santa Ana).
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