S&P, a unit of New York-based McGraw-Hill Cos., wants the suit filed by federal prosecutors earlier this year tossed, arguing other agencies issued identical ratings before one of the nation's worst financial crisis. It's unclear whether U.S. District Judge David Carter will make a ruling after the hearing.
"If the government's case appears to be a stretch, that is because it is," the agency's attorneys wrote in a 21-page filing seeking dismissal. "S&P's inability, together with the Federal Reserve, Treasury and other market participants, to predict the extent of the most catastrophic meltdown since the Great Depression reveals a lack of prescience but not fraud."
The Obama administration accused S&P of refusing to warn investors about the collapsing housing market in 2006 and inflating its ratings of risky mortgage investments. Prosecutors believe the agency gave high marks to the investments because it wanted more business from the banks that issued them.
High ratings from the three major credit rating agencies made it possible for banks to sell trillions in risky investments. Some investors can buy only securities that carry high credit ratings.
The lawsuit alleges S&P recognized home prices were sinking and borrowers were having a difficult time repaying loans. But those facts weren't reflected in the ratings the agency gave to complex real-estate investments known as mortgage-backed securities and collateralized debt obligations, prosecutors said.
The government said S&P didn't move quickly enough to issue a mass downgrade of subprime-backed securities.
The civil case, which seeks $5 billion in penalties, is the Obama administration's most aggressive action against those who were deemed responsible for the recession, following years of criticism that the government didn't do enough.