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…

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.

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