- The Washington Times - Tuesday, February 3, 2015

Credit ratings giant Standard & Poor’s on Tuesday 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 U.S. Attorney General Eric Holder Jr. said the company shared some of the blame for the crash.

“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,” said Mr. Holder in a statement Tuesday. “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.”

In recent years, the Justice Department has targeted major Wall Street players that the government contends contributed to the worst financial crisis since the Great Depression. Last year, the Department of Justice reached a $17 billion settlement with Bank of America Corp. — the largest civil settlement with a single entity in American history — to resolve federal and state claims against its mortgage lending subsidiary. The same year, Citigroup Inc. agreed to pay $7 billion, including a $4 billion civil penalty to the Justice Department, to settle the U.S. government’s allegations it knowingly sold subpar mortgages ahead of the financial crisis.

The settlement is equivalent to more than a year’s profit for S&P.

For its part, S&P did not admit to wrongdoing in the settlement. The company and regulators “settled this matter to avoid the delay, uncertainty, inconvenience, and expense of further litigation,” Catherine Mathis, an S&P spokeswoman, said in a statement. “The settlement contains no findings of violations of law by the company, S&P Financial Services or S&P Ratings,”

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.

The settlements will be reflected in the 2014 full-year financial statements and fourth-quarter results of McGraw Hill Financial, the parent company of S&P, that will be released on Feb. 12, the company said. Half the amount the company is paying, or $687.5 million, will go to the 19 states and the District of Columbia.

S&P officials also announced Tuesday that they will pay $125 million in a separate settlement with the California Public Employees’ Retirement System to resolve its claims against the company regarding ratings on three structured investment vehicles.

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 again loosened standards to drum up business in 2011 and 2012.

⦁ This article was based in part on wire service reports.

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