A national legal battle over the credit reporting agency Standard & Poor's Financial Services has spilled into Tennessee.
S&P filed a pre-emptive lawsuit against Tennessee Attorney General Robert Cooper on Monday, asking the U.S. District Court for the Middle District of Tennessee to issue an injunction prohibiting the state from pursuing legal action against the credit rating agency.
S&P, which is owned by McGraw-Hill Companies Inc., received a letter from Cooper threatening a lawsuit under the Tennessee Consumer Protection Act. S&P anticipated a lawsuit from the U.S. Department of Justice stemming from the agency's high pre-recession credit ratings for mortgage companies, according to Reuters . Those credit ratings, which some believe to have been inflated, played a key role in the financial crisis, according to a January 2011 Financial Crisis Inquiry Commission report.
S&P claims in the Tennessee lawsuit that their credit ratings are protected under the First Amendment.
“The Tennessee Consumer Protection Act impermissibly punishes speech and commentary protected by the First Amendment ... by permitting the imposition of liability without proof that the speech was published with knowledge of its falsity or with serious doubts as to its truth,” the suit reads.
On Tuesday morning, the state filed a complaint in Davidson County Circuit Court, mirroring similar action by the Justice Department.
“The complaint filed in state court today alleges that investors as well as others in the market were misled by Standard and Poor’s promises that its analysis was independent and objective. Unfortunately, as the complaint alleges, this was not the case, and ratings of mortgage backed securities and collateral debt obligations were influenced by the desire to continue earning lucrative fees,” Cooper said.
The state's suit "seeks relief to stop S&P from making misrepresentations to the public; change the way the company does business; and civil penalties and disgorgement of ill-gotten profits."