A judge ruled Wednesday that the California attorney general's lawsuit against Standard & Poor's Ratings Services can move forward.The ruling clears an initial legal hurdle for California Attorney General Kamala Harris and gives additional momentum to state and federal prosecutors who have sued S&P in recent months for allegedly shoddy ratings assigned to securities before the financial crisis.
The ruling was made by Judge Curtis E.A. Karnow in California Superior Court in San Francisco County. The lawsuit, or parts of it, could still face roadblocks in coming months.
In a statement Wednesday night, an S&P spokeswoman pointed out that the judge was required to accept the allegations presented by the California attorney general as true, as is typical this early in a legal proceeding. "We will continue to vigorously defend the case on the merits and pursue its dismissal," she added.
A spokesman for the California Attorney General's Office didn't have an immediate comment.
California alleges that the state's two massive pension funds, the California Public Employees' Retirement System and California State Teachers' Retirement System, purchased securities rated by S&P before the financial crisis and lost around $600 million after those deals plummeted in value, the ruling says.
Ms. Harris sued S&P, a unit of McGraw Hill Financial Inc., in February under the state's false-claims act, which allows the state to seek three times the amount of damages allegedly suffered.
S&P is fighting a multifaceted legal front in addition to the California lawsuit. Lawyers are defending S&P against similar allegations of inflated ratings in Illinois and Connecticut. And 15 lawsuits also filed in February by other state attorneys general were merged into one by a panel of judges in June. The consolidation of the cases was a win for the rating firm as it seeks to streamline its legal liability.
The California ruling comes as the Justice Department's lawsuit against S&P is gathering momentum.
The Justice Department sued S&P in a civil suit in February for allegedly granting fraudulent ratings to complex securities that later tanked in value, triggering losses for federally insured banks and credit unions.
In July, a U.S. district judge ruled that the federal government's lawsuit against S&P could move forward. That case is now in the discovery process, as both sides seek additional documents and witnesses to bolster their arguments.
S&P has said since February that the federal and state lawsuits are without merit.