AG announces $864M settlement with Moody’s

Investor service accused of mispresentation in securities ratings

HARRISBURG >> State Attorney General Bruce R. Beemer Monday announced an $863.7 million settlement with Moody’s Corp. and Moody’s Investors Service Inc. following allegations that Moody’s engaged in unfair and deceptive business practices by misrepresenting its independence and objectivity in the rating of mortgaged-backed securities.

The settlement, which will be filed in the form of an assurance of voluntary compliance, will result in an approximate $19.4 million payment for Pennsylvania. Those funds will be distributed to numerous state agencies that were impacted by Moody’s alleged conduct.

The settlement is the result of an investigation conducted by the U.S. Department of Justice, and a separate investigation conducted by 21 states and the District of Columbia.

“This is a landmark settlement that will result in meaningful reforms by Moody’s and a significant recovery of funds for many Commonwealth agencies,” Attorney General Beemer said in a statement released Monday.

The 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, Beemer’s office said. Structured finance securities, including residential mortgage-backed securities and collateralized debt obligations, derive their value from the monthly payments consumers make on their mortgages. These securities, particularly those backed by subprime mortgages, were at the center of the financial crisis.

Despite repeated statements emphasizing its independence and objectivity, Moody’s allegedly allowed its analysis to be influenced by its desire to earn lucrative fees from its investment bank clients. Further, Moody’s allegedly assigned inflated credit ratings to toxic assets packaged and sold by the Wall Street investment banks, Beemer said. The alleged misconduct began as early as 2001 and became particularly acute between 2004 and 2007.

The Attorney General’s Bureau of Consumer Protection plans to distribute approximately $19.4 million to the Pennsylvania Department of Treasury, the Public School Employees Retirement System (PSERS), the State Employees Retirement System (SERS) and the Pennsylvania Turnpike Commission.

Combined with a similar settlement reached in 2015 with Standard & Poor’s, the Attorney General’s office has recovered more

than $40 million from the

credit rating agencies to resolve allegations of deceptive conduct.

Consumers who wish to file a complaint regarding Moody’s, or another credit rating company, are encouraged to call 1-800-4412555.

Or go to www.attorneygeneral.gov to file a complaint online.