“After the U.S. Justice Department accused Standard & Poor’s of fraud earlier this year, the credit rater had a choice.

“It could make a courtroom argument that would torch its reputation, but might get the lawsuit thrown out.

“Or, if S&P’s executives decided the harm would be too great in the court of public opinion, they could tell the lawyers to use another approach, even if it might be less likely to succeed in getting the case tossed.

“In the end, the company went with the first option andlost. Now S&P is stuck with the damage.

“The argument S&P made was that company statements extolling the objectivity, independence and integrity of its ratings are only “puffery” and that a reasonable investor wouldn’t depend on them. The Justice Department’s complaint alleged that such statements were false and part of a scheme to defraud investors. This week, in a preliminary ruling, the judge overseeing the suit rejected S&P’s defense, which at some level looks even worse than the government’s accusations. (Search “S&P puffery” on Google, and you will see what I mean.)”

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Read Jonathan Weil’s full Bloomberg opinion piece here