Moody’s $864 million settlement over inflated ratings

Moody's $864 million settlement over inflated ratings

Ratings agency Moody’s has agreed to pay nearly $864 million to US Federal and state authorities following a multi-year investigation into inflated ratings on risky mortgage securities in the lead up to the 2008 financial crisis.

The US Justice Department said it had reached an agreement with Moody’s and 21 states.

“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 a statement.

The money to be paid represents only one-third of the $2.5 billion Moody’s earned in the four years leading up to the financial crisis.

The case comes after Standard & Poor’s reached a $1.5 billion settlement with the US last year.

States including Connecticut, Mississippi and South Carolina had filed lawsuits against Moody’s and other states were planning to sue.

The lawsuits alleged Moody’s had inflated the ratings of certain high risk “toxic assets” packaged and sold by Wall Street banks in the lead up to the financial meltdown.

The banks had needed triple A security ratings on those risky assets so that they could sell them to institutional investors such as pension plans. A triple A credit rating made them seem less risky.

Connecticut attorney general George Jepsen released a statement saying that 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.”

Moody’s said the agreement did not contain any finding that it had violated the law. Nor did it contain any admission of liability.

“The agreement acknowledges the considerable measures Moody’s has put in place to strengthen and promote the integrity, independence and quality of its credit ratings,” Moody’s said in a statement.

“As part of the resolution, Moody’s had agreed to maintain, for the next five years, a number of existing compliance measures and to implement and maintain certain additional measures over the same period.”

 



An award winning author and journalist, commentator, lecturer, and speaker, Leon is a freelance business journalist who covers a range of areas including politics, strategy, globalization, leadership and all the big trends ahead. His main skill is summing up all the news that’s around. For the last 30 years, his main focus has been on management issues. He also produces two podcasts for RMIT University, Talking Business and Talking Technology. Leon has worked for Fairfax, News Limited, AAP and the Herald and Weekly Times.


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