Today the ratings agency, Standard & Poor, has settled a lawsuit after almost two years of litigation with the Department of Justice. The Wall Street Journal has also reported that the Justice Department lowered the settlement figure and dropped their demand
that S&P admit to violating the law, while S&P agreed to take
back its claim that the lawsuit had been an act of retaliation against the downgrade of the US government debt from AAA in 2011. The agency has agreed to pay $1.375 billion to US regulators after allegations that S&P knowingly inflated their ratings of risky mortgage bonds to encourage financial institutions to buy and sell financial products. The bonds were blamed for the collapse of the US property market and the ensuing global financial crisis. Half of the $1.375 billion will go to the federal government while the other half will go to the 19 states and the District of Columbia, who also filed lawsuits against the ratings agency.
http://www.wsj.com/articles/s-p-pact-hinged-on-trade-offs-with-justice-1422915828?mod=WSJ_hp_LEFTTopStories
2 comments:
The lawsuit against S&P, has given a strong indication to other rating agencies and corporations that they cannot just get away after breaking laws.
However, the settlement includes no findings that the company violated the law.
This leniency then contradicts the earlier assumption and thus indicates that the Justice Department won't be too harsh and by paying a couple of million dollars you can escape your felony.
I see this lawsuit as a warning shot that financial security evaluators wont be able to get away with extremely shady behavior in the future. They were not the only cause of the recession, but definitely played a large role, so I believe the lawsuit was well deserved. Since the Fed was forced to buy all of their junk through quantitative easing, its justified they are getting over half a billion dollars themselves from the lawsuit. I hope more lawsuits on other agencies occur in the future.
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