Standard & Poor Settles Suit Over Inflated Ratings for $1.375 Billion

Having been in business for over 150 years and with 26 offices worldwide, Standard & Poor’s Rating Services touts that it provides “high-quality market intelligence in the form of credit ratings, research, and thought leadership.” Nevertheless, the company, a unit of McGraw Hill Financial Inc., became the adversary in a legal battle with the U.S. Department of Justice and 19 states and the District of Columbia, which resulted in a settlement of $1.375 billion.

The lawsuit, filed nearly two years ago, concerns allegations that S&P misled investors by ignoring its own standards and by marketing its top-notch grades of residential mortgage bonds as being independent and objective. Subsequently, S&P’s ratings turned out to be flawed when the housing market collapsed, triggering widespread downgrades and purportedly helping cause the financial crisis. According to Bloomberg, while S&P admitted its ratings were “woefully inaccurate” it denied committing fraud or any other wrongdoing as contended by the government in its Complaint.

On February 3, 2015, the parties reached a settlement to “avoid the delay, uncertainty, inconvenience, and expense of further litigation.” Pursuant to the settlement, S&P agreed to pay $687.5 million to the U.S. Department of Justice and $687.5 million to the District of Columbia and the 19 states. As reported by the Wall Street Journal, the payout is almost 10 times as large as any other previous settlement involving a credit rating firm. Despite settling, however, S&P did not admit to any wrongdoing.

The case is: U.S. v. McGraw-Hill Companies, Inc., Case No. 2:13-cv-00779 (C.D. Cal.)

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