S&P reaches $1.5 billion deal with U.S., states over crisis-era ratings

Tue Feb 3, 2015 1:46pm EST
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By Aruna Viswanatha and Karen Freifeld

(Reuters) - Credit rating firm Standard & Poor's will pay $1.5 billion to resolve a collection of lawsuits over its ratings on mortgage securities that soured in the run-up to the 2008 financial crisis, concluding one of the U.S. government's most ambitious cases tied to the housing collapse.

The settlement comes after more than two years of litigation as S&P tried to beat back allegations that it issued overly rosy ratings in order to win more business.

S&P parent McGraw Hill Financial Inc MHFI.N 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 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, seeking $5 billion and accusing the ratings agency of defrauding investors. S&P argued that its ratings were protected under the First Amendment right to free speech, and described the lawsuit as retaliation for the firm downgrading the credit rating of the United States.

Under the settlement, S&P acknowledged it has not uncovered evidence to support the allegations of retaliation. "This was important to me," Attorney General Eric Holder said, referring to the allegation as "utter nonsense."

"290 million documents have been examined. We could look at 290 million more, and you'll find absolutely no indication that was the reason why this investigation was begun, why this settlement was reached," Holder said at a news conference announcing the settlement.

DOJ officials said it was the largest number of documents the Justice Department has ever made available as part of a lawsuit.   Continued...

Reginald Hill of Occupy Cincinnati and Occupy the Hood joins a march to protest home foreclosures in the East Price Hill neighborhood in Cincinnati, Ohio March 24, 2012. REUTERS/John Sommers II