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Illinois vs Standard and Poors

Illinois vs Standard and Poors

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Published by Lani Rosales

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Published by: Lani Rosales on Jan 28, 2012
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05/13/2014

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INTHECIRCUITCOURTOFCOOKCOUNTY,ILLINOISCOUNTYDEPARTMENT,CHANCERYDIVISIONTHEPEOPLEOFTHESTATEOFILLINOIS,Plaintiff,
v.
THEMCGRAW-HILLCOMPANIES,INC.andSTANDARD
&
POOR'SFINANCIALSERVICESLLC,Defendants.COMPLAINT
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ThePlaintiff,THEPEOPLEOFTHESTATEOFILLINOIS,byLISAMADIGAN,AttorneyGeneraloftheStateofIllinois,bringsthisactionagainstDefendants,TheMcGraw-HillCompanies,Inc.,Standard&Poor'sFinancialServicesLLC,anditsbusinessunitStandard&Poor'sRatingsServices(referredtohereincollectivelyas"S&P"),forviolatingtheIllinoisConsumerFraudandDeceptiveBusinessPracticesAct,815ILCS505/1-1
etseq"
andtheUniformDeceptiveTradePracticesAct,815ILCS510/1-1
etseq.
SUMMARYOFTHECASE1.ThislawsuitseeksredressforS&P'sunfair,deceptive,andillegalbusinesspracticeofsystematicallymisrepresentingthatitscreditanalysisofstructuredfinancesecuritieswasobjective,independentandnotinfluencedbyeitherS&P'soritsclients'financialinterests.Theserepresentationswereuntrue.2.S&PrepresentsthatitsanalysisofstructuredfinancesecuritiesisindependentandobjectiveandtheresultofthehighestqualitycreditanalyticsthatareavailabletoS&P.Indeed,S&P'sreputationforindependence,objectivityandintegrityisemphasizedbyS&Ptotheusersofitsratingsatnearlyeveryturn.
1
 
23.AsaseniorS&Pexecutivepubliclystatedin2005:"Sinceanystructuredfinancetransactioninvolvescomplexstructuresandthetransferofcomplexcreditrisks,thekeytoasuccessfultransactionisanindependentandobjectiveanalysisofboththestructureandthecreditrisk.Anditisinthisfunctionthat[S&P's]StructuredFinanceratingshaveexcelled."4.S&PhasfurtheremphasizeditsrepresentationofanindependentandobjectiveanalysisinitspubliclyavailableRatingsServicesCodeofConduct,inwhichS&Pexplicitlypledgesthatitsratingsofstructuredfinancesecuritiesareobjectiveanduninfluencedby"thepotentialeffect...[oftheratingonS&P,]anissuer,aninvestor,orothermarketparticipant."5.Despitethisexplicitrepresentation,S&PfailedtoactindependentlyandobjectivelywhenanalyzingstructuredfinancesecuritiesandtherebyviolatedtheIllinoisConsumerFraudActandtheIllinoisUniformDeceptiveTradePracticesAct.6.Startinginatleast2001,S&Palloweditsdesireforincreasedrevenueandmarketshareinthestructuredfinanceratingsmarkettoinfluencetheratingmethodologiesitdevelopedforratingstructuredfinancesecurities,aswellastheratingsthatwereultimatelyassignedtotheseinvestments.Similarly,revenueandmarketshareconcernsinfluencedthemannerinwhichS&Pmonitoredstructuredfinancesecurityratingsoncetheyhadbeenassigned.7.Inparticular,byatleast2001,S&P'sdesiretoincreaserevenueandmarketsharebyratingasmanystructuredfinancedealsaspossibleledS&PtoignoretheincreasingrisksofstructuredfinancesecuritiestocatertothepreferencesoflargeinvestmentbanksandotherrepeatissuersofstructuredfinancesecuritiesthatdominatedS&P'srevenuebase.8.AlthoughS&P'sanalysiswasdesignedtosatisfythedemandsofrepeatissuers,S&Prepresentedthatitsanalysisandratingofstructuredfinancesecuritieswasindependent,objectiveand,asstatedinitsCodeofConduct,"not...affectedbytheexistenceof,orpotential
 
PUBLICINTEREST
for,abusinessrelationshipbetween[S&P]...andtheIssuer...oranyotherparty,orthenon-existenceofanysuchrelationship."ThisrepresentationbyS&Pwasfalse.9.Bymisrepresentingitsobjectivitywhenevaluatingstructuredfinancesecurities,S&Pofferedaservicethatwasmateriallydifferentfromwhatitpurportedtoprovidetothemarketplace,i.e.,anindependentandobjectiveanalysisofcreditrisk.10.SinceS&Palloweditscompensationstructure,desireforprofitsandfearoflosinginvestmentbankclientstotainttheintegrityofitssupposedlyindependentcreditanalysis,S&Pmisrepresentedthetruenatureofitsservicesbyadvertisingitselfasobjectiveandindependent.11.S&P'screditanalyseshaveasignificantimpactontheconsumerandfinancialmarketsinIllinois.S&PregularlytransactsbusinessintheStateofIllinoisandderivessubstantialrevenuefromitsbusinesswithintheStateofIllinois.S&PratesstructuredfinancesecuritiesissuedbyissuerslocatedwithinIllinois.Additionally,S&P'sratingsonstructuredfinancesecuritiesareroutinelyviewedbyinvestorsandotherparticipantsinthefinancialmarketslocatedwithintheStateofIllinois.BasedonS&P'spublicrepresentations,theseindividualsandentitiesdependonS&Ptoprovideindependentandobjectiveassessmentsoftherelativecreditriskofstructuredfinancesecurities,unaffectedbyS&P'soritsclientsinterests.12.TheStateofIllinoisseeksdisgorgementandcivilpenalties,aswellasotherinjunctiveandequitablerelieftopreventtheseunfair,deceptiveandillegalbusinesspracticesfromhappeninginthefuture.13.TheIllinoisAttorneyGeneralbelievesthisactiontobeinthepublicinterestofthecitizensoftheStateofIllinoisandbringsthislawsuitpursuanttoSection7oftheIllinoisConsumerFraudandDeceptiveBusinessPracticesAct,815ILCS505/7(a).
JURISDICTIONANDVENUE
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