Standard & Poors, one of the major credit rating agencies, has done an interesting pivot in defining itself amidst a Justice Department civil suit. Like all the major rating agencies S&P is paid by those whose securities it rates.  This, quite obviously, is a conflict of interest in how it rates securities because if it rates a financial security in a way the customer does not like the customer will likely look elsewhere for current or future business. This blatant conflict of interest is something the rating agencies, S&P included, have long denied – until now.

Standard & Poor’s Ratings Services has long declared that its letter-grade ratings are independent and objective, part of a bid to allay concerns over its business model…

Now, lawyers defending the company against the Justice Department’s recent civil lawsuit say that statements about independence and objectivity are “puffery” and were never meant to be taken at face value by investors

What a difference a federal lawsuit makes. It is hard to exaggerate the continual righteous indignation S&P used to display when the question was raised over conflict of interest. But that was about sanctity of the firm’s reputation, now it’s about money.

In its formal defense filed Monday, S&P pointed to two earlier court decisions where judges ruled that such statements by the firm were puffery and therefore can’t form the basis for a fraud claim.

Legally, that might be a tenable defense, some lawyers said.

But politically and reputation-wise, the assertion that S&P’s longtime representation of its ratings process has been puffery comes at a sensitive time. U.S. and European regulators are hammering out new rules to step up regulation of S&P and its top rivals, such as Moody’s Corp.’s  Moody’s Investors Service.

If you want to be paid for your reputation it’s not a good idea to say you are full of crap and everyone knows it, which is the defense of S&P. Despite their previous public claims concerning objectivity and independence now they say it was all “puffery” and investors should have known better. Suckers. But once/if S&P escapes the hot seat the firm is going to have a mighty fine time trying to track down investors who will take their ratings seriously. Maybe S&P should have a new slogan:

S&P: You can trust in not trusting us.