1. S&P nears settlement over inflated ratings

S&P nears settlement over inflated ratings

On TV and in the courtroom, Standard & Poor’s has waged war against a US Justice Department lawsuit...

By: | Published: January 14, 2015 12:05 AM

On TV and in the courtroom, Standard & Poor’s has waged war against a US Justice Department lawsuit. But now, the giant bond-ratings agency wants to buy peace.

After S&P mounted a two-year campaign to defeat civil fraud charges — portraying them as retaliation for cutting the credit rating of the US — the agency is now negotiating with the US Justice Department to settle the case, said people briefed on the matter.

For S&P, accused of awarding inflated credit ratings to mortgage investments that spurred the financial crisis, the delay in settling may prove costly. The US Justice Department and more than a dozen state attorneys general are demanding that S&P pay more than $1 billion to settle the case, the people briefed on the matter said, a penalty large enough to wipe out the rating agency’s entire operating profit for a year.

If S&P capitulates to the government’s financial demands — and it has privately signalled a willingness to do so, the people said — the settlement would support the conclusion that it is futile to fight government fines.

The government offered S&P roughly the same settlement size, $1 billion plus, before filing suit two years ago. If S&P had embraced that offer, instead of fighting accusations that it abused its role as a rating agency, it could have walked away without accumulating tens of millions of dollars in legal fees.

Its recent change of heart, which could lead to a settlement in the first quarter of this year, would bring to an end a painful period for the ratings agency and the broader financial industry.

  1. William M
    Jan 14, 2015 at 9:28 am
    As I stated in my "Friend of the Court" brief in this case, if the point of having credit ratings is to determine the probability of default, then S&P should be evaluated based on their performance in predicting default. By any reasonable standard, S&P failed and in so doing damaged the public. Even if S&P were found not to have known its ratings were faulty, the result was, at best, gross incompetence: its status as a credit rating agency should be suspended or terminated immediately. Given that profits generated were based on that status, all profits generated over the relevant time period should be recaptured. Finally, any penalty should incorporate the following: 1. All net income for the three years preceding the date of the first action alleged in this matter should be confiscated from S&P. 2. All bonuses and commissions paid to any S&P employees involved in the transaction chain should be specifically recaptured or clawed back SEC and DOJ’s incompetence and S&P’s greed helped cost the nation $19.2 trillion, increased the speed with which China will overtake the U.S. in GDP terms, and set the stage for the eventual replacement of the US dollar as global reserve currency. These events tend not to be in the public interest. See: :www.prlog/12256590-william-michael-cunningham-files-amicus-brief-in-us-vs-sp-us-district-court-central-district-ca
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