Moody's $864m penalty for ratings in run-up to 2008 financial crisis

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[I was thinking this amount must be nothing to Moody's, but then I looked up their financial statements on Nasdaq -- this actually represents one-third of their net profits of approx. $2.5 billion. But for colluding in decisions that lead to the worst financial crisis since the Great Depression, this still don't seem too bad (i.e., still no one in jail).  *RON*]

Reuters, The Guardian, 14 January 2017
Moody’s said that it stands behind the integrity of its ratings and noted that the settlement over its ratings of risky mortgage securities contains no finding of a violation of law or admission of liability. Photograph: ClassicStock / Alamy/Alamy
The credit rating agency Moody’s has agreed to pay nearly $864m to settle with US federal and state authorities over its ratings of risky mortgage securities in the run-up to the 2008 financial crisis, the department of justice said on Friday.

Moody’s reached the deal with the justice department, 21 states and the District of Columbia, resolving allegations that the firm contributed to the worst financial crisis since the Great Depression, the department said in a statement.

“Moody’s failed to adhere to its own credit-rating standards and fell short on its pledge of transparency in the run-up to the ‘great recession’,” principal deputy associate attorney general Bill Baer said in the statement.

S&P Global’s Standard & Poor’s entered into a similar accord in 2015 paying out $1.375bn. Standard and Poor’s is the world’s largest ratings firm, followed by Moody’s.

Moody’s said it would pay a $437.5m penalty to the justice department, and the remaining $426.3m would be split among the states and Washington DC.

As part of its settlement, Moody’s also agreed to measures designed to ensure the integrity of credit ratings going forward, including keeping analytic employees out of commercial-related discussions.

The rating agency’s chief executive also must certify compliance with the measures for at least five years.

Moody’s said that it stands behind the integrity of its ratings and noted that the settlement contains no finding of a violation of law or admission of liability.

Moody’s said it already has implemented some of the compliance measures in the agreement.

Moody’s shares closed at $96.96 on Friday. The stock plummeted more than 5% on 21 October, the day it disclosed the justice department had notified the firm it was planning to sue over the ratings.

Moody’s settlement on Friday resolved the justice department probe without a federal lawsuit. In the Standard & Poor’s case, resolution was reached after the US filed a $5bn fraud suit.

Connecticut, whose attorney general helped lead negotiations, filed a lawsuit against Moody’s in 2010. Mississippi and South Carolina later sued, and other states had potential claims.

Connecticut’s law suit claimed that Moody’s ratings were influenced by its desire for fees, despite claims of independence and objectivity. It also accused Moody’s of knowingly inflating ratings on toxic mortgage securities.

Moody’s ratings were “directly influenced by the demands of the powerful investment banking clients who issued the securities and paid Moody’s to rate them,” Connecticut attorney general, George Jepsen, said in a statement on Friday.

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