New York-based credit ratings agency Standard & Poor's Ratings Services and its parent company, McGraw Hill Financial, have entered into settlements with the U.S. Department of Justice and Attorneys General of 19 states and the District of Columbia over claims that S&P misrepresented residential mortgage-backed securities and collaterized debt obligations to investors, according to a release from McGraw Hill on Tuesday morning.
As part of the settlement, which is not subject to court approval, McGraw Hill agreed to pay $687.5 million to the Department of Justice and a combined $687.5 million to the states and the District of Columbia, totaling $1.375 billion in settlements. The Department of Justice sued S&P for $5 billion in February 2013, alleging that the credit ratings agency "knowingly and with the intent to defraud, devised, participated in, and executed a scheme to defraud investors" in ratings of collateralized debt obligations and residential mortgage-backed securities between 2004 and 2007.
Bank of America lost its bid on Tuesday to overturn a jury verdict that resulted in a $1.27 billion civil penalty over the packaging and selling of toxic residential mortgage-backed securities to Fannie Mae and Freddie Mac in the run-up to the financial crisis. The U.S. Department of Justice sued Bank of America in August 2013, accusing the bank's Countrywide division of misrepresenting the mortgage-backed securities it sold to GSEs through a program known as the High Speed Swim Lane, or Hustle. A jury ordered Bank of America to pay $1.27 billion for its role in the Hustle case in July 2014.