Wednesday, February 4, 2015

S&P Pays $1.5 Billion to Settle Suits over Ratings


NEW YORK – Rating agency Standard & Poor’s reached an agreement with U.S. authorities to pay $1.5 billion to settle suits that alleged it inflated ratings of bonds backed by subprime mortgages, the company said Tuesday.

The settlement, disclosed by S&P parent company McGraw Hill Financial, Inc., requires the agency to publicly acknowledge that the mortgage-backed securities it evaluated ahead of the 2008 global financial crisis were growing riskier.

Under the accord, S&P will pay $687.5 million to the U.S. Department of Justice, while another $687.5 million is to be split among 19 states and the District of Columbia.

An additional $125 million will go to the California Public Employees Retirement System, or Calpers.

The suit, announced in Washington on Feb. 5, 2013, charged S&P with defrauding investors by intentionally inflating the ratings of mortgage-backed securities and other collateralized debt obligations, known as CDOs.

The suit was the first action by the federal government against one of the major rating agencies, whose failure to accurately evaluate risk has been cited by authorities and market analysts as a key factor in the 2008 financial meltdown.

The parties agreed to settle the dispute “to avoid the delay, uncertainty, inconvenience, and expense of further litigation,” S&P said in a statement

Payments by S&P under the agreement will be reflected in McGraw Hill’s quarterly results, set to be disclosed on Feb. 12, the statement said.

After the settlement was announced, McGraw Hill shares advanced 2.55 percent in the first hour of trading on the New York Stock Exchange.


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