How to get rich and richer - lie

If you claim your food is the best in the world, even if that is not true, it is still usable as food.
But if S&P's debt-rating service is not independent, objective and free of conflicts of interest, it negates it's very purpose.

http://www.ajc.com/weblogs/jay-bookman/2013/apr/23/so-its-classic-puffery-say-financial-system-honest/

Jay Bookman, Atlanta Journal-Constitution
April 23, 2013

As part of its halting response to the 2008 financial meltdown, the U.S. Justice Department has filed suit in federal court accusing Standard & Poors, the nation's largest debt-rating service, of civil fraud. According to the Justice complaint, S&P repeatedly promised the public that its ratings on mortgage-backed securities debt were independent, objective and free of conflicts of interest. In other words, they told investors that their ratings were the product of tough analysis and could not be bought.

The reality was very different, according to the federal complaint:

"As S&P knew, these representations were materially false, and concealed material facts, in that S&P's desire for increased revenue and market share in the RMBS and CDO ratings markets led S&P to downplay and disregard the true extent of the credit risks posed by RMBS and CDO tranches in order to favor the interests of large investment banks and others involved in the issuance of RMBS and CDOs ...." (RMBS=Residential Mortgage-Backed Securities; CDO=Collateralized Debt Obligation)

I have no idea how the courts are going to rule in the case, which will turn on arcane provisions of federal financial laws. But I do find S&P's legal defense very, very interesting. In a filing seeking dismissal of the case, S&P's lawyers argue that the company's promises of independence and objectivity were, in effect, total BS that nobody should have believed anyway.

The brief states:

"... the Government claims that S&P engaged in a scheme to defraud investors by asserting that its ratings were independent, objective and uninfluenced by conflicts of interest when S&P knew or believed that in truth they were not. This claim fails because the statements at issue are not actionable. Each of the representations identified by the Government is the type of vague, generalized statement that court after court -- in this District, this Circuit and elsewhere across the country -- has held to be non-actionable in a federal fraud case such as this."

As it turns out, there's a legal term for such rhetoric: "classic puffery." When a fast-food chain promises to deliver "the best hamburgers in the world," for example, that's classic puffery, and the chain can't be sued if its burgers really aren't the best. To S&P's lawyers, the company's promise of analytical integrity was also "classic puffery."

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