S&P strikes $1.5B settlement with Justice over crisis-era ratings

Standard & Poor’s will pay $1.5 billion to the government to settle charges of wrongdoing leading up to the financial crisis.

The credit rater, which announced the deal Tuesday, will pay $687.5 million to the Justice Department, $687.5 million to 19 states and the District of Columbia and another $125 to the California Public Employees Retirement System.

{mosads}The settlement draws to a close a long-running legal battle between the rater and the government, after the Justice Department filed a 2013 suit alleging the rater engaged in “egregious” conduct leading up to the financial collapse of 2008.

Credit raters like S&P shouldered a huge amount of criticism after the crisis, as many mortgage-backed securities that received top-shelf ratings of creditworthiness proved to be worthless once the subprime mortgage crisis hit. The government accused the rater of misleading investors with lofty ratings, leading to losses in the billions of dollars.

Attorney General Eric Holder said Tuesday company leaders ignored employee warnings about the ratings, out of concern that issuing downgrades could cause the rater to lose 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,” he said.

The 2013 civil suit was filed on the heels of an investigation began in 2009, and Tuesday’s settlement marks the first the government has reached against a rater for actions tied to the financial crisis.

The probe proved to be somewhat contentious, and was made even more complicated by S&P’s 2011 decision to issue the first-ever downgrade of the United States’s credit rating following a protracted battle over the debt limit. The rater actually countersued the U.S. government at one point, alleging the charges amounted to retribution for the downgrade decision.

S&P’s parent company, McGraw Hill Financial, noted in a statement that the settlement includes no findings of violations of law by the rater. The agreement states the deal was struck “to avoid the delay, uncertainty, inconvenience, and expense of further litigation.”

The company added that it takes “compliance with regulatory obligations very seriously.”

In January, S&P struck a settlement with the Securities and Exchange Commission over a separate matter tied to its ratings of some commercial bonds. The rater agreed to pay $77 million and suffer a one-year ban on rating some mortgage securities as part of the deal, the first-ever reached between the government and a credit rating agency. 

This story was updated at 1 p.m.