Settlement from Standard & Poor’s lawsuit to be used to fund programs for children, families, seniors and public safety
AZCentral is reporting Arizona will be receiving a slice of a $1.38-billion settlement from a rating agency tied to the 2008 subprime-mortgage collapse.
Arizona will get $21.5 million from Standard & Poor's Financial Services and its parent, McGraw-Hill Financial, resolving a lawsuit that the rating agency misled investors about its objectivity when it evaluated bond-like securities backed by subprime residential mortgages.
Attorneys general from 19 states and Washington, D.C., joined the U.S. Department of Justice in bringing the legal action, arguing in the S&P lawsuit that Standard & Poor's issued inflated ratings from 2004 to 2007 to please companies that sold the securities to investors.
Higher ratings allowed the issuers to pay lower interest rates than were justified given the risks involved, while attracting a wider audience of investors.
According to the lawsuit, S&P repeatedly assured investors that it had procedures in place to maintain the objectivity and independence of its ratings, according to a statement from Arizona Attorney General Mark Brnovich. Those representations were false because S&P's ratings criteria "were directly influenced by a desire to please its paying clients, the issuers of the securities, and to generate additional ratings business," according to Brnovich's statement. Arizona sued the company in February 2013.
Chicago securities attorney Andrew Stoltmann called the settlement a slap on the wrist.
"S&P basically sold rosy, misleading ratings for cash, and the financial carnage caused by this activity was absolutely massive, with individual investors bearing the brunt of this conduct," he said in a statement. "The fine was not punitive enough to deter this sort of conduct in the future."
The companies didn't admit wrongdoing. They also agreed to pay another $125 million in a separate settlement with the giant California Public Employees Retirement System or Calpers.
The federal government will receive half of the $1.38-billion settlement, with the 19 states and District of Columbia splitting the rest. Brnovich said Arizona's share will be used to fund programs for children, families, seniors and public safety.
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