The U.S. Department of Justice and a coalition of 18 states and the District of Columbia have reached a settlement agreement with McGraw Hill Financial, Inc. and Standard & Poor’s Financial Services LLC resolving allegations that S&P misled market participants when it rated structured finance securities in the lead-up to the 2008 financial crisis.
As the result of an investigation conducted and litigation filed by the Attorney General’s Consumer Protection Unit, Delaware will receive $25 million as part of a settlement which requires S&P to pay a total of $1.375 billion to the states and the U.S. Department of Justice.
Delaware filed its lawsuit in early 2013, along with the U.S. Department of Justice, the District of Columbia and 11 additional states. The states of Connecticut, Mississippi, and Illinois had previously sued S&P, and several states filed lawsuits later in 2013. A lack of oversight by ratings services is viewed as a factor in the subprime mortgage crisis that led to a deep recession in 2009.
Subprime mortgage securities earned high ratings from ratings agencies, despite high risks that of default that led to the collapse of the Lehman Brothers investment company and triggering a deep recession. The risks were often the result of a lack of documentation leading to the term “liar’s loans.”
