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February 4, 2015

Politico: Government settles with S&P for $1.4 billion in financial crisis case

“Credit ratings firm Standard & Poor’s has reached a nearly $1.4 billion settlement with the Justice Department and several states over allegations the company misled investors in the lead-up to the 2008 financial crisis by giving risky mortgage bonds its highest rating.

“Under the terms of the deal, S&P will pay $687.5 million to the Justice Department and another $687.5 million to the attorneys general in 19 states and the District of Columbia, the government and S&P announced on Tuesday. The settlement resolves a lawsuit brought by DOJ in February 2013 over ratings the firm issued between 2004 and 2007 on mortgage-backed securities and complex collateralized debt obligations that were central to the financial market’s collapse.

“S&P did not admit to any wrongdoing as part of the settlement, which is not subject to court approval. The firm reached a separate deal with the California Public Employees’ Retirement System over similar allegations for $125 million.

“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,” said Attorney General Eric Holder. “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.”

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“Watchdog groups were critical of the settlement because it did not include an admission of wrongdoing and no individual executives were targeted.

“For what is allegedly years of egregious, reckless conduct, all the DOJ reportedly got was a big dollar settlement and big headlines, but not one admission of fault; not one individual punished; and, no detailed disclosure of exactly what S&P did; who at S&P did it; how S&P profited; and, who was harmed and by how much,” Better Markets President Dennis Kelleher said in a statement. “The American people deserve much better.”

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Read the full Politico article by Jon Prior and Patrick Temple-West here.

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