Moody’s Investor Services Settles for $863M

(CN) – Moody’s Investor Services has agreed to settle with 21 states, the District of Columbia and the Department of Justice for $863 million over allegations that its inflated ratings on mortgage-backed securities contributed to the 2008 financial crisis.

“The 2008 housing collapse was amplified by Moody’s putting its own profits ahead of the interests of investors it claimed to serve,” Iowa Attorney General Tom Miller said in a statement following announcement of the settlement Friday. “We are holding Moody’s accountable for harming investors and our economy.”

Although Moody’s presents itself as an independent rating entity, a Department of Justice investigation found that it skewed its ratings of subprime mortgages to secure backing from investment bankers.

This led investors seeking low-risk investments to unwittingly take on those that were actually high risk.

The investigation also found that Moody’s succumbed to pressure from big banks to skew its ratings of subprime mortgages, assigning AAA ratings—which denote an exceptional degree of creditworthiness—to debts that were in fact risky.

The alleged misconduct began in 2001 and continued through 2007.

In addition to the monetary settlement, Moody’s has agreed to draw up a detailed statement of facts regarding its conduct and to certify its compliance with the settlement annually for four years.

The states of Arizona, California, Connecticut, Delaware, Idaho, Illinois, Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Mississippi, Missouri, New Hampshire, New Jersey, North Carolina, Oregon, Pennsylvania, South Carolina and Washington, along with the District of Columbia, each received a cut in the settlement.

 

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