(BOISE) – Attorney General Lawrence Wasden today announced a nearly $864 million settlement has been reached with Moody’s Corporation, Moody’s Investors Service, Inc. and Moody’s Analytics, Inc., by the U.S. Department of Justice, 21 states and the District of Columbia. Idaho’s portion of the settlement is $7.48 million.
The landmark settlement is the culmination of an investigation into Moody’s conduct and its representations of independence and objectivity in the rating of structured finance securities, including residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs), which derive their value from the monthly payments consumers make on their mortgages. These securities, particularly backed by subprime mortgages, were at the center of the financial crisis that began in 2007.
“This settlement helps hold Moody’s accountable for activities that hurt Idahoans and our economy,” Wasden says. “It’s also a reminder that no company is above the law and that businesses should always conduct themselves in a lawful manner.”
Moody’s represented to consumers that its Aaa rating carried a specific level of risk, and the investigation found evidence that Moody’s altered its process so that the Aaa rating represented a greater risk than Moody’s disclosed to investors and consumers. The investigation also found evidence that Moody’s gave in to pressure from big banks, which were powerful, repeat customers that paid Moody’s millions of dollars to rate these securities. The banks needed Aaa ratings in order to sell these securities to institutional investors, such as pension plans and retirement plans.
In addition to the monetary settlement, Moody’s has agreed to a detailed statement of facts in connection with the way it rated RMBS and CDOs leading up to the financial crisis. It has also agreed to significant compliance terms. These include an annual certification by the CEO of Moody’s Corporation certifying that Moody’s is following certain compliance requirements. The certification will be provided to Idaho every year for the next four years.
Together with the similar settlement against Standard & Poor’s in 2015, the Idaho Attorney General’s Office has recovered nearly $29 million from the credit rating agencies to resolve allegations of deceptive conduct.
The settlement will be filed with Ada County District Court for approval.
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