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Report: Credit Rater, Justice Department Near $1 Billion Settlement over RMBS

Standard & Poor's Justice Department SettlementNew York-based credit ratings agency Standard & Poor's is close to a $1 billion settlement with the U.S. Department of Justice over the misrepresentation of mortgage-backed securities to investors in the years leading up to the financial crisis in 2008, according to multiple media reports.

S&P, a division of McGraw Hill Financial, may settle the complaint by the Justice Department as early as this quarter, according to reports. Should they settle for $1 billion, it would be the third settlement of $1 billion or more the Justice Department has secured in the last 14 months against companies with regards to faulty RMBS prior to the financial crisis. JPMorgan Chase settled for $13 billion in November 2013 and Bank of America agreed to a $16.65 million settlement in August 2014.

Spokespeople from both S&P and the Justice Department declined to comment on the possibility of a settlement when reached by email.

The Justice Department filed the complaint against S&P in February 2013. The complaint alleges that prior to the financial crisis, S&P downplayed the risk on certain securities in order to sell them to investment banks that were looking to buy securities with high ratings. During a three-year period from September 2004 to October 2007, S&P issued ratings for more than $2.8 trillion worth of RMBS and nearly $1.2 trillion of collateralized-debt obligations, the complaint says. The case is scheduled to go to trial in September if a settlement is not reached.

S&P is the first credit ratings agency to be sued by the Department of Justice's mortgage-backed securities group. S&P is accusing the Justice Department of singling out the credit agency for downgrading the U.S. debt in 2011 when it did not sue S&P's competitors that gave the same securities the same ratings that S&P had, according to reports. The Justice Department has reportedly denied any connection between the 2013 lawsuit against S&P and S&P's downgrade of the U.S. debt in 2011.

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.

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