After ratings agency Standard & Poor’s settled with attorneys general from two states and the Department of Justice over allegations that it gave overly positive ratings on mortgage-backed securities prior to the financial crisis, Moody’s is going to face a similar investigation, according the Financial Times.
It seemed that even the most cautious investors were jumping on the mortgage-backed securities bandwagon from 2004 to 2007, and S&P was wooing them into investing in these unstable vehicles. The S&P said they were within their First Amendment Rights with regard to free speech and said the government was retaliating for the S&P’s downgrade of U.S. debt in 2011. U.S. Attorney General condemned the counter accusation as “utter nonsense, ” and pointed out the extensive “fishing expedition” of millions of documents. “You’ll find absolutely no indication that that (revenge against the S&P) was the reason why this investigation was done and why this settlement was reached, ” according to Reuters. The Department of Justice said it was the largest number of documents ever produced in an investigation.
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The S&P 500, which is owned by McGraw Hill Financial, had to settle $687 million with the Department of justice and $687.5 million to 19 states, including the District of Columbia, that brought the suit. Attorneys general from Mississippi and Connecticut initiated the suit. The S&P spokespeople did not admit wrongdoing, but said in a statement that the settlement was in the best interest of the company. Eric Holder sounded triumphant after the settlement, and said, according to the Financial Times, “As we have proven time and time again, we will not be deterred or outlasted. No unlawful conduct is too complicated to pursue. And no financial institution, at home or abroad, is too powerful to be held accountable for wrongdoing.”
If S&P had to settle, can Moody’s be far behind? Moody’s also spoke glowingly about mortgage backed securities. There is no guarantee the probe will lead to a lawsuit, but Moody’s officials remain firm and say the charges are “without merit.”