S&P Pays $1.4B in Fraudulent Ratings Settlement

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The financial ratings firm Standard & Poor’s has struck a settlement agreement with the Justice Department and 19 states — including Indiana — in a case that alleged the company defrauded investors.

The lawsuit alleged that S&P allowed lucrative fees from investment banks to shape its analysis of those company’s products, despite claiming that its ratings were independent. The lawsuit further alleged that S&P inflated credit ratings of toxic assets that Wall Street investment banks sold. The misconduct began in 2001 and peaked near the height of the national mortgage crisis.

The Justice Department alleged that S&P “falsely represented that its ratings were objective, independent, and uninfluenced by S&P’s relationships with investment banks when, in actuality, S&P’s desire for increased revenue and market share led it to favor the interests of these banks over investors.”

“The settlement we have reached today not only makes clear that this kind of conduct will never be tolerated by the Department of Justice – it also underscores our strong and ongoing commitment to pursue any company or entity that violated the law and contributed to the financial crisis of 2008,” Attorney General Eric Holder said today.

The settlement requires S&P’s parent company, McGraw Hill Financial, to pay $1.375 billion. The Justice Department will receive $687.5 million and the rest will be divided among the states that were included in the lawsuit. Indiana joined 18 other states and DC in the settlement agreement.

Indiana Attorney General Greg Zoeller says that Indiana will receive $21.5 million from the settlement. A majority of that money will go to the state’s General Fund.

The other states that participated in the lawsuit include: Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Idaho, Illinois, Iowa, Maine, Mississippi, Missouri, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee and Washington as well as the District of Columbia.

To put the settlement in perspective, S&P’s parent company posted revenue roughly four times greater than this settlement in fiscal year 2013.

S&P did not acknowledge any wrongdoing as part of the settlement agreement.

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