A year-and-a-half-long legal case between the U.S. Department of Justice and Standard & Poor’s Rating Services could be over soon. According to the Wall Street Journal, S&P is preparing to resume talks with the DOJ in an effort to settle a $5 billion lawsuit filed by the government in February 2013.
Citing sources close to the suit, the Journal reported that S&P is looking to negotiate a deal that could range from several hundred million to $1 billion. S&P is looking to resolve the charges leveled by DOJ that the company, an arm of McGraw-Hill Financial Inc., inflated ratings for mortgage bonds before the Wall Street meltdown in 2008. This lapse in standards, the suit claims, was an attempt to increase fees from insurers that ended up costing investors billions.
The suit alleges that S&P "knowingly and with the intent to defraud, devised, participated in, and executed a scheme to defraud investors” in collateralized debt obligations and securities backed by residential mortgages between September 2004 and October 2007. The suit also claims that S&P "falsely represented that its credit ratings of RMBS and CDO tranches were objective, independent, uninfluenced by any conflicts of interest that might compromise S&P's analytical judgment.”
According to the Journal, the lawsuit is the offshoot of an investigation by the federal government that dates back to at least 2010.
While no one at DOJ nor S&P has spoken on the record about the case recently, S&P did in the wake of the filing call the suit "entirely without factual or legal merit." Nevertheless, the company announced in 2013 that it had expected the suit, adding that it felt it was being unfairly punished by the government for not being able to foresee the coming financial crisis. According to a Reuters report at the time, S&P said its actions were "motivated by commercial considerations."
While the expected S&P offer falls shy of what the DOJ is seeking, the Wall Street Journal reported that the ratings firm wants the matter over with, without having to admit to wrongdoing. From the beginning, S&P officials shaken by the government’s urging that the company admit wrongdoing have bristled at the idea that being forced to admit such a thing could leave the firm open other lawsuits by investors.
S&P also is contending with several state-level lawsuits over its actions and conduct during the financial crisis and is, according to the Journal, evaluating its strategies for settling these suits.