Moody’s Corp. (MCO) will pay nearly $864M to settle allegations about the way that credit ratings agency rated high-risk mortgage securities, including residential mortgage-backed securities (RMBSs) and collateralized debt obligations (CDOs), leading up to the 2008 financial crisis. The settlement was reached between Moody’s Corporation, Moody’s Analytics Inc., and Moodys’ Investors Services, and the US Department of Justice, the District of Columbia, and 21 US states. Moody’s is accused of knowing that it was inflating the ratings of mortgage securities that were toxic.
As part of the agreement, $437M will be paid as penalty to the DOJ. The rest of the $426.3M would be divided between DC and the states. Moody’s consented to measures that would make sure of its credit ratings’ integrity moving forward, and its chief executive will have to certify measures of compliance for a minimum of five years.
Despite settling, Moody’s maintains that its ratings pre-the 2008 crisis were valid. The credit rater also pointed out that this case has been resolved without any findings that it violated any laws. Moody’s is not admitting any liability. However, in a Statement of Facts, the company admitted to key parts of its purported behavior.
The settlement resolves the investigation brought by the Justice Department in its federal lawsuit. With the states’ cases, it was Connecticut’s attorney general who helmed talks with the credit rating agency. Connecticut’s complaint accused Moody’s of issuing the ratings it did because of the fees it wanted to get paid, as well its purported desire to keep investment banking clients that not only issued the securities but also paid the agency to rate them, satisfied. Yet, despite these purported conflicts, the credit rater maintains that it was able to stay objective and independent.
Our RMBS fraud lawyers and CDO fraud attorneys represent investors throughout the US, as well as foreign investors with investments made through a US-based brokerage firm or investment advisor. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.
Justice Department and State Partners Secure $864 Million Settlement With Moody’s Arising From Conduct In The Lead Up To The Financial Crisis, DOJ, January 13, 2017