Lawyers for Lance Armstrong, the cycling hero turned PED pariah, told a court today that he didn’t defraud his former sponsor because they should have known he was doping—even though he denied it at the time.

It sounds about as absurd as Standard & Poor’s recent claim that their clients should have known their advertised independence was just something they made up to sell more ratings. But in this case, Armstrong’s lawyers are right.

The sponsor in question is the cash-strapped US Postal Service, which is why Armstrong is charged with defrauding the government for lying about his drug use. If the court finds him to be a fraudster, he’ll need to pay about three times the $40 million the USPS spent to sponsor him between 1995 and 2004. That’s as much as $120 million to the government and to a former USPS teammate, Floyd Landis, who originally brought the suit as a whistleblower and stands to gain up to a third of any penalties.

Armstrong has admitted that he used illegal performance-enhancing drugs throughout his Tour de France career, but that doesn’t make it an open-and-closed case. His lawyers point out that allegations were raised in 1999 after Armstrong tested positive for steroids (just a cream he used for saddle sores, he said at the time) and again during the 2000-2002 investigation of the entire USPS team, after a team doctor was videotaped by reporters disposing of materials including a Norwegian performance-enhancing drug. As it turns out, the entire team was doping, including Landis.

But USPS apparently did little to respond to these reports, and instead renewed the sponsorship. With good reason: Armstrong was busy “winning” seven consecutive Tours de France, and USPS was basking in the reflected glory. It was not asking for information about doping or adding new restrictions to its endorsement contract. If USPS wins this case and gets Armstrong to cough up the money, no team sponsor will ever care whether its riders are cheating or not, giving riders one more incentive to dope.

Of course, that supposes that the Tour de France isn’t shut down by global warming first.