U.S. Attorney General Eric Holder announces a $1.375 billion settlement deal with the rating agency Standard & Poor's Financial Services for defrauding investors prior to financial crisis. Rough Cut (no reporter narration).
ROUGH CUT (NO REPORTER NARRATION) Credit ratings firm Standard & Poor's reached a major settlement agreement with the U.S. Department of Justice to resolve a series of lawsuits over its ratings on mortgage securities that soured in the runup to the 2008 financial crisis, Attorney General Eric Holder announced on Tuesday. "The Department of Justice has reached an agreement totaling nearly $1.4 billion with the credit rating agency Standard & Poor's Financial Services, or S&P - along with its parent corporation, McGraw Hill Financial," Holder said at a news conference. The settlement comes after more than two years of litigation as S&P fought allegations it issued overly rosy ratings in order to win more business. S&P parent McGraw Hill Financial Inc said it will pay $687.5 million to the U.S. Department of Justice, and $687.5 million to 19 states and the District of Columbia, which had filed similar lawsuits over the ratings. Late Monday, the firm also reached a separate $125 million settlement with public pension fund California Public Employees' Retirement System, which had sued S&P in 2009, claiming its inaccurate ratings caused the firm hundreds of millions of dollars in losses. The United States sued S&P in 2013 after initial settlement talks broke down, accusing the ratings agency of defrauding investors and seeking $5 billion in one of the most ambitious cases the Justice Department has fought tied to the financial crisis. In a 119-page complaint, the government said S&P delayed updates to its ratings criteria and analytical models between September 2004 and October 2007, weakening its criteria in a desire to gain more business from the investment banks that issued the securities. "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," Holder said. "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." "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 added. Under the deal, S&P does not admit to any violations of law. Holder said the deal will prevent companies from making similar actions in the future. "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," Holder said.