The credit ratings giant Standard & Poor’s (S&P) has agreed to pay $1.4 billion to settle a series of lawsuits stemming from the high ratings it gave to a number of mortgage securities that helped mask the problems that led to the global financial crisis in 2008. S&P fought the lawsuits for two years, claiming its analysts did not produce overly positive ratings for risky securities in order to draw more customers. But the Department of Justice (DOJ) said the company shared some of the blame for the crash. the DOJ said in a statement:
On more than one occasion, the company’s leadership ignored senior analysts who warned that the company had given top ratings to financial products that were failing to perform as advertised. As S&P admits under this settlement, company executives complained that the company declined to downgrade underperforming assets because it was worried that doing so would hurt the company’s business.
One half of the amount the company is paying, or $687.5 million, will go to 19 states and the District of Columbia. S&P was the only credit rating company targeted by the Obama administration, even though others gave similar strong ratings for subprime-backed securities before the financial meltdown. Experts say the Justice Department’s lawsuit against S&P could serve as the model for similar action against Moody’s Corp. and Fitch Ratings, the industry’s other major players.
In previous litigation, S&P claimed the Justice Department was unfairly targeting the company because of a decision it made in 2011 to downgrade U.S. sovereign debt to AA+ from AAA, at a time when the White House and Congress were battling over raising the federal debt limit. The Justice Department has denied there was any connection.
S&P has also agreed to pay the federal government, New York state and Massachusetts more than $77 million to settle separate charges by the Securities and Exchange Commission (SEC) related to its ratings of high-risk mortgage securities after the crisis. The SEC had accused S&P of fraudulent misconduct, saying the company again loosened standards to drum up business in 2011 and 2012.
Source: Washington Times
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