O.C. Bond Ratings Aren’t Protected Speech, Judge Rules

Standard & Poor’s credit-ratings service can’t claim free-speech protection for a 1994 analysis that gave Orange County securities top marks months before the county filed for bankruptcy, a federal judge ruled Monday.

The county says bad advice from S&P; and other Wall Street firms in 1994 led to investment losses of about $1.64 billion and the nation’s biggest municipal bankruptcy.

S&P;, a division of McGraw-Hill Cos. Inc., had given the county’s municipal bonds top ratings that year. It later became clear the county had been on track to disaster because of the speculative investments made by former Treasurer-Tax Collector Robert L. Citron.

S&P;, which publishes a variety of financial analyses, had argued that its services for Orange County were covered by 1st Amendment guarantees of freedom of speech and press, and that it should not be held liable.

“All Orange County sought from us was the traditional ratings service, which involved publication,” argued S&P; attorney Geoffrey Thomas. “We’re in the same situation as the Los Angeles Times or the Wall Street Journal.”

U.S. District Judge Gary Taylor didn’t agree.

“You didn’t undertake a duty of expression. That’s not what they’re complaining about,” Taylor said. “You undertook a duty of analysis. That’s what they’re complaining about.”

The county’s lawyer, Michael Hennigan, agreed: “We could [not] have cared less about whether there was any publication.”

The county is trying to recover more than $2 billion. No trial date has been set.

The S&P; case will follow trial later this year of a suit against Merrill Lynch & Co., the county’s former main broker. County officials are counting on damages from their suits to fund recovery plans.