S&P paying $1.38B to settle charges over crisis-era ratings
Standard & Poor's is paying about $1.38 billion to settle government allegations that it knowingly inflated its ratings of risky mortgage investments that helped trigger the financial crisis, the Justice Department announced Tuesday.
The settlement with the U.S. government, 19 states and the District of Columbia covers ratings issued from 2004 through 2007 by the McGraw-Hill subsidiary.
It resolves a court fight that began with a government lawsuit two years ago and involved dozens of depositions and hundreds of millions of documents.
Under the agreement, S&P admitted that it issued and confirmed positive ratings despite knowing that those assessments were unjustified and in many cases based on packages of mortgages that it knew were likely to default.
"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," Attorney General Eric Holder said at a news conference Tuesday.
S&P also agreed to retract its earlier allegation that the government had brought the action in retaliation for its downgrade of the United States' credit rating in 2011, a concession that Holder said was personally important to him.
Company executives "complained that the company declined to downgrade underperforming assets because it was worried that doing so would hurt the company's business," Holder added.
"While this strategy may have helped S&P avoid disappointing its clients, it did major harm to the larger economy, contributing to the worst financial crisis since the Great Depression,” he said.
The credit rating agency's agreement represents one of the government's key efforts to hold accountable market players deemed responsible for contributing to the worst financial crisis since the Great Depression.
With the case now resolved, the government moves a big step closer to wrapping up its years-long pursuit of Wall Street wrongdoing from the crisis.
McGraw Hill Financial Inc. said in a statement that the settlement contains no findings of violations of law by itself, S&P Financial Services or Standard & Poor's Ratings Services.
Last month, S&P 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 related to its ratings of high-risk mortgage securities after the crisis.
The SEC had accused S&P of fraudulent misconduct, saying the company loosened standards to drum up business in 2011 and 2012.