- Associated Press - Tuesday, February 3, 2015

CHICAGO (AP) - Illinois will receive a $52.5 million share of a multi-state settlement with Standard & Poor’s over allegations that the credit ratings agency knowingly inflated ratings of risky mortgage investments that sparked the financial crisis of 2008, Attorney General Lisa Madigan announced Tuesday.

She was among nearly two dozen attorneys general who, along with the U.S. Department of Justice, worked on the $1.38 billion settlement with S&P.; Illinois’ share will go to the state’s underfunded pension systems.

The settlement with McGraw Hill Financial subsidiary Standard & Poor’s Financial Services LLC deals with ratings issued from 2004 through 2007. The agreement, which came after months of negotiations, also resolves lawsuits filed by the attorneys general of 19 states and the District of Columbia. Madigan first filed a lawsuit against S&P; in 2012.

“S&P; deliberately exploited its trusted reputation as an independent analyst to maximize profits,” Madigan told reporters. “In the process, S&P; became the key enabler of the economic meltdown.”

In its statement of facts, the agency doesn’t admit or deny wrongdoing, however it does detail its conduct.

According to the settlement, S&P; misrepresented its process used to assign credit ratings, assigning its highest ratings to risky mortgage-backed securities. The maneuvers were part of a plan aimed at keeping clients and increasing market share.

The states included in the settlement are Arizona, California, Delaware, Indiana and Maine.

The agreement signals one of the government’s major efforts to hold accountable market players deemed responsible for contributing to the worst economic crisis since the Great Depression.

The three major rating agencies - S&P;, Moody’s Investors Service and Fitch Ratings - have been blamed for helping fuel the 2008 crisis by giving high ratings to high-risk mortgage securities. The high ratings made it possible for banks to sell trillions of dollars’ worth of those securities. Some investors, such as pension funds, can only buy securities that carry high credit ratings. Those investments soured when the housing market went bust in 2006.

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Follow Sophia Tareen at http://twitter.com/sophiatareen

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