California reaches multi-million dollar deal with S&P

by 04 Feb 2015
By Meghan de St. Aubin

Standard & Poor’s Ratings Services (S&P) has reached a $125 million settlement over accusations with California’s public pension system, Calpers, involving inflated ratings of mortgage investments.

S&P and Calpers, also named as Fitch Ratings and Moody’s Investors Service in the lawsuit, resolved the case which involved inflated grades of residential mortgage deals that later faltered, according to the Wall Street Journal.

The California Public Employees Retirement System, or Calpers, began the lawsuit against S&P in 2009. In the lawsuit, Calpers stated it suffered tremendous losses after the housing market collapse and AAA-rated securities that where backed by pools of residential mortgages defaulted.

S&P is also accused by the U.S Justice Department of playing a role in the 2008 economic collapse by giving top ratings to substandard mortgage bonds to gain business from banks on Wall Street. S&P is being cited for not warning investors of the housing market crash in fear of losing business.

The ratings company recently announced a separate settlement with the U.S. regulators and about a dozen states for more than $1.37 billion this week.

S&P said it was singled out because it downgraded U.S. debt in 2011. It's competitors, who issued the same grades for the same securities, were not sued by the Justice Department.

On Tuesday, the Justice Department announced it was investigating Moody's over shoddy mortgage bonds it rated during the run up to the financial crisis.



Is TILA-RESPA a good or bad thing long term?