Lawyer David K. TeSelle Explains the S&P Lawsuit
Hello. My name is David TeSelle. I am a trial lawyer and co-leader of the complex commercial trial department at the Denver, Colorado law firm of Burg Simpson.
Today’s topic is the recent lawsuit filed by the U.S. Department of Justice against the rating agency S&P, what these lawsuits are about, and what Burg Simpson is doing to help.
At Burg Simpson, for the past five years, we’ve led the charge on behalf of investors, states, municipalities, pension funds and others, in lawsuits against the rating agencies S&P, Moody’s and Fitch for their role in the economic collapse of 2008. Last week, the United States Department of Justice filed a 120-page complaint against S&P, alleging that the ratings S&P gave to numerous complex investments leading up to the economic collapse were fraudulent.
The complaint alleges that S&P gave these fraudulent ratings intentionally, in order to line their pockets with obscene profits.
So why is this wrong? And why is it bad for America? Investors take risks every day on Wall Street. The fact that an investment loses money, or even loses a lot of money, doesn’t mean the investor automatically has a claim. I agree with that. That is our free market system at work. Two sides are betting on every deal; the buyer is betting that the investment will increase in value; the seller is betting that it will decrease. Someone will win; someone will lose. That is the American way.
But it’s different when the game is rigged. It’s different when one side is taking a risk, but the other side already knows who will win and who will lose because the outcome is already predetermined. That is not the American way. And when that happens, someone needs to stand up to protect the integrity of the system.
S&P is a Wall Street rating agency that investors relied upon to independently analyze and rate the riskiness of certain complex investments. S&P represented themselves as independent, neutral arbiters of risk who could be trusted and relied upon by investors. S&P held themselves out as the gatekeepers who were insuring that what was being sold was actually what was represented. The best way to understand what happened here is to know that the rating agency’s role on Wall Street is like that of the meat inspector.
The meat inspector’s job is to ensure that meat being sold as safe for human consumption really is safe. When the meat inspector stamps the meat as Grade A beef, they are representing to the world their unbiased opinion that the meat is safe and free of contaminants such as deadly Mad Cow Disease.
The CDOs and RMBS that S&P rated in 2006 and 2007 were too complex for an investor to fully evaluate the risk on their own. Like the meat inspector holds himself out as the unbiased expert and judge of the quality of the meat, the rating agencies hold themselves out as the unbiased inspectors and judges of risk in these complex investments. Investors relied on ratings agencies such as S&P to accurately assess and disclose the risk of these investments. When S&P gave it’s coveted ‘Triple A’ rating to an investment, it was telling the investor, “This investment is safe, and has very low risk.” It was telling the world that this beef was safe to eat, and was free of any evil contaminants such as Mad Cow Disease.
But according to the Department of Justice complaint, the investments given these ‘Triple A’ ratings by S&P did not deserve them. Not only did they not deserve the safe ratings, but investments were given the ‘Triple A’ rating that were extremely risky, that S&P knew were filled with junk investments—Mad Cow Disease, if you will—which the investment banks were attempting to unload onto unsuspecting investors.
So you ask, “Why did S&P do this?” Money. And lots of it.
S&P held themselves out as the independent protectors of the investing public, giving large investment banks the cover to sell off their worthless assets to unsuspecting buyers. And S&P was paid very handsomely to do so. What S&P did, according to the DOJ complaint, was sell its ratings, sell its integrity to the highest bidder. This would be like the meat inspector, knowing that the meat it was inspecting was filled with deadly Mad Cow Disease, yet stamping it ‘Grade A’ beef in exchange for a large bag of cash.
As a result, innocent investors, who relied on the rating agencies to be honest in their assessment of the risk, lost billions of dollars virtually overnight in the worst economic downturn since the Great Depression.
But the story is finally going to come out. The truth is about to be known. And the parties whose massive greed and deception caused this collapse will be forced to face the public and take responsibility for their bad acts. For that, I want to thank the Department of Justice and the many State Attorneys General who have shown the courage to join this important fight.
At Burg Simpson, we have been fighting this battle against fraud by the Wall Street rating agencies and investment bankers since the Fall of 2007. In the cases we’ve handled for states, municipalities, investment funds, money managers and others, we’ve reviewed and compiled over a million pages of public and confidential documents, taken dozens of depositions of key players, interviewed several whistleblowers, and worked with some of the best finance and CDO experts in the world. We have worked with Congress and other governmental agencies in their investigation of this wrongful conduct. We have the unique knowledge and contacts in this area that only 5 years of intense experience fighting these cases can bring.
While the recent news of the DOJ’s lawsuit is good, this fight is far from over. Burg Simpson has the knowledge, experience, and legal skill to help you and your clients recover losses from the rating agency’s fraudulent conduct on Wall Street. If you or your clients have a potential claim, please contact me, David TeSelle, at https://www.burgsimpson.com. I’ll be happy to assist and evaluate whether your claim is one Burg Simpson will be willing to take.
Thanks again, and keep fighting for justice.