[1]New York-based credit ratings agency Standard & Poor's [2] is close to a $1 billion settlement with the U.S. Department of Justice [3] 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 [4].
S&P, a division of McGraw Hill Financial [5], 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.