$1.375 Billion State-Federal Settlement Reached with Standard & Poor’s
February 3, 2015
LITTLE ROCK – Arkansas Attorney General Leslie Rutledge announced today that Arkansas, the U.S. Department of Justice and a coalition of 18 other states and the District of Columbia have reached a settlement agreement with Standard & Poor’s Financial Services LLC (S&P) resolving allegations that S&P misled investors when it rated structured finance securities in the lead-up to the 2008 financial crisis. Rutledge released the following statement:
“Today, I am pleased to announce that after years of hard work and litigation, S&P is finally being held accountable for its role in the 2008 financial crisis. Arkansas consumers expect, and are entitled to, an impartial independent analysis of securities from credit-rating agencies. Unfortunately, for many years, S&P placed profit above people. But thanks to the work of this partnership between the States and the Department of Justice, we are demonstrating that no company, no matter its size, can circumvent the law.”
Arkansas will receive $21.5 million from the settlement.
In early 2013, Arkansas joined the U.S. Department of Justice, the District of Columbia and 18 other states in suit against S&P. The federal and state complaints against S&P alleged that, despite S&P's repeated statements emphasizing its independence and objectivity, the credit rating agency allowed its analysis to be influenced by its desire to earn lucrative fees from investment bank clients – while investors and other market participants, including state regulators, relied on S&P's promises of independence and objectivity. The complaints alleged that the agency knowingly assigned inflated credit ratings to toxic assets packaged and sold by the Wall Street investment banks. The alleged misconduct began as early as 2001 and became particularly severe between 2004 and 2007. As evidenced by the SEC’s recent suspension of S&P’s license to rate certain mortgage backed securities, the misconduct continued into 2011.
Structured finance securities backed by subprime mortgages were at the center of the financial crisis. These financial products, including residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS) and collateral debt obligations (CDOs), derive their value from the monthly mortgage payments made by homeowners.
In addition to the financial settlement, S&P has agreed to a statement of facts acknowledging conduct related to its analysis of structured finance securities. S&P will also comply with all applicable state laws, including the Arkansas Deceptive Trade Practices Act, and for five years will cooperate with any request for information from any state expressing concern over a possible violation of state law.
Arkansas filed a consumer protection lawsuit in Pulaski County Circuit Court on Feb. 5, 2014, against S&P alleging that the credit rating agency intentionally misled investors in the way it rated the toxic assets at the heart of the nation's financial crisis. The Attorney General’s pending suit against S&P will be resolved by the filing of a consent judgment which will include the terms of this settlement agreement.
In addition to Arkansas, the states involved in today's settlement include Arizona, California, Colorado, Connecticut, Delaware, Idaho, Illinois, Indiana, Iowa, Maine, Mississippi, Missouri, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee and Washington as well as the District of Columbia.