Standard & Poor's is paying about USD 1.38 billion to settle government allegations that it knowingly inflated its ratings of risky mortgage investments that helped trigger the financial crisis.
The McGraw Hill Financial subsidiary Standard & Poor's Financial Services LLC reached a settlement with the Justice Department over ratings issued from 2004 through 2007.
The settlement also resolves lawsuits filed by the attorneys general of 19 states and the District of Columbia. McGraw Hill Financial Inc said the settlement contains no findings of violations of law by itself, S&P Financial Services or Standard & Poor's Ratings Services.
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. The settlement announced today came after months of negotiations.
The Justice Department filed civil fraud charges against S&P two years ago this week. It accused the company of failing to warn investors that the housing market was collapsing in 2006 because doing so would hurt its ratings business.
"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," Attorney General Eric Holder said in a statement today.
The Justice Department had demanded USD 5 billion in penalties from S&P when it sued the company in February 2013. The payment of about USD 1.38 billion to settle the case is less than S&P's revenue in 2013 of USD 2.27 billion.
The three big 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.
Experts say the Justice Department's lawsuit against S&P could serve as a template for action against Fitch and Moody's.
