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Standard & Poor's To Pay Over $1 Billion In Legal Settlement

AUDIE CORNISH, HOST:

We begin with the outcome of one of the government's biggest cases linked to the financial crisis. Standard & Poor's, the financial credit rating agency, has agreed to pay nearly $1.4 billion to settle allegations that it defrauded investors in the years leading up to the crisis. The settlement was announced today by the Justice Department which joined 19 states and the District of Columbia in bringing the charges. NPR's Jim Zarroli reports that along with the huge fine, the company is also dropping its finger-pointing at the federal government.

JIM ZARROLI, BYLINE: S&P is one of three major companies that rates securities for investors, and it has a lot of power in the markets. U.S. officials say that beginning in 2006, senior analysts at the company began to warn about problems in the booming mortgage market, and they told their supervisors that the company needed to change the way it rated certain mortgage-backed securities. But U.S. Attorney General Eric Holder said today that S&P was reluctant to do that because it was paid by the very same companies that packaged and sold those securities.

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ATTORNEY GENERAL ERIC HOLDER: While this strategy may have helped S&P avoid disappointing its clients, it did major harm - major harm to the larger economy, contributing to the worst financial crisis since The Great Depression.

ZARROLI: As part of the settlement, S&P agreed to back off one of its most controversial claims. The company had maintained that it was being persecuted by the U.S. government because of its decision to downgrade U.S. Treasury debt in 2011. Holder said the company had spent months going on a fishing expedition looking for evidence to back up its claim, but ultimately found nothing.

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HOLDER: 290 million documents have been examined. We can look at 290 million more, and you'll find absolutely no indication that that was the reason why this investigation was begun - why this settlement was reached - utter nonsense.

ZARROLI: S&P's decision to back away from the claim was a victory for the Obama administration, but some critics say the settlement announced today falls short. Although the $1.3 billion penalty is the biggest ever paid by a rating company, S&P refused to acknowledge breaking any laws. Instead, it signed onto a dry statement of facts about its conduct that stops short of admitting wrongdoing. Robert Weissman is president of Public Citizen which has criticized the Obama administration for not pursuing wrongdoers responsible for the subprime crisis.

ROBERT WEISSMAN: Unfortunately, today's deal suggests that little has been learned. The doctrine of too-big-to-jail is alive and well at the Department of Justice and that perpetrators are able to escape meaningful accountability.

ZARROLI: Meanwhile, The Wall Street Journal reported this week that the Justice Department is beginning to investigate one of the other major rating companies, Moody's, and was interviewing former executives at the company. Like S&P, Moody's has already been sued by several states over its conduct in the years leading up to the financial crisis. U.S. officials refuse to confirm or deny the report. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.

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