Payout to US justice department, 21 states and District of Columbia for risky mortgage securities ratings before stock market crash.
The credit rating agency Moody’s has agreed to pay nearly $864m to settle with US federal and state authorities over its ratings of risky mortgage securities in the run-up to the 2008 financial crisis, the department of justice said on Friday.
Moody’s reached the deal with the justice department, 21 states and the District of Columbia, resolving allegations that the firm contributed to the worst financial crisis since the Great Depression, the department said in a statement.
“Moody’s failed to adhere to its own credit-rating standards and fell short on its pledge of transparency in the run-up to the ‘great recession’,” principal deputy associate attorney general Bill Baer said in the statement.
S&P Global’s Standard & Poor’s entered into a similar accord in 2015 paying out $1.375bn. Standard and Poor’s is the world’s largest ratings firm, followed by Moody’s.
Moody’s said it would pay a $437.5m penalty to the justice department, and the remaining $426.3m would be split among the states and Washington DC.
As part of its settlement, Moody’s also agreed to measures designed to ensure the integrity of credit ratings going forward, including keeping analytic employees out of commercial-related discussions.
The rating agency’s chief executive also must certify compliance with the measures for at least five years.
Moody’s said that it stands behind the integrity of its ratings and noted that the settlement contains no finding of a violation of law or admission of liability.
Moody’s said it already has implemented some of the compliance measures in the agreement.
Moody’s shares closed at $96.96 on Friday. The stock plummeted more than 5% on 21 October, the day it disclosed the justice department had notified the firm it was planning to sue over the ratings.