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Idaho to receive $7.48 million in settlement
with Moody's |
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January 17, 2017 |
Idaho Attorney General Lawrence Wasden announced
on Friday that 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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