(HARTFORD) – The Office of the Attorney General today announced settlements with the three major credit rating agencies, Moody’s Investors Service, Inc., Standard & Poor’s, and Fitch, Inc., resolving claims that the companies allegedly misrepresented the meaning of their public bond credit ratings and unfairly gave lower credit ratings to public bonds.

As part of the settlements, the rating agencies will credit the State approximately $900,000, which will be used to offset the expense of obtaining future credit ratings on sales of State bonds, a direct cost savings to the State of Connecticut.

Connecticut’s lawsuits against Moody’s, S&P and Fitch, filed in July 2008, were the first of their kind brought by an enforcement agency – state or federal. The State’s complaints alleged that because of the deceptive and unfair trade practices by the credit rating agencies, the State and its cities, towns and school districts paid higher interest rates than they should have on the bonds they issued, and also bought unnecessary bond insurance.

The State and its cities and towns issue bonds to pay for roads, schools, and other important public projects.

Specifically, the complaints alleged that public bonds frequently received lower credit ratings than corporate bonds, even though the rating agencies’ own studies showed that public bonds were far more likely to be paid back than their corporate counterparts. As part of the settlements, the rating agencies denied that they violated any laws but agreed to the settlements to avoid the uncertainty and expense of litigation.

Subsequent to the filing of the lawsuits, Moody’s, S&P and Fitch reformed how they rate public bonds in the United States and these reforms have resulted in higher credit ratings -- and corresponding lower interest rates -- for many Connecticut cities and towns.

In addition, a key reform sought by the State’s lawsuits was included in the federal Dodd- Frank Wall Street Reform and Consumer Protection Act, enacted after the lawsuits on July 21, 2010. The Dodd - Frank Act now requires rating agencies to clearly define the meaning of their rating symbols and to apply such symbols consistently across all securities, including public and corporate bonds, for which the symbols are used.

Under the terms of the settlements, Moody’s, S&P and Fitch have also agreed to meet with public bond issuers in Connecticut to explain their credit rating scales and the factors the rating agencies look to when rating public bonds in Connecticut.

The Office of the Attorney General credited Moody’s, S&P, and Fitch for making significant changes to the process by which they assign ratings to publicly issued bonds. The case was investigated and litigated by Assistant Attorney General Matthew J. Budzik, head of the Finance Department, and by Assistant Attorneys General George W. O’Connell and Gary M. Becker, with direction by Assistant Attorney General Michael Cole, head of the Antitrust Department.

The State of Connecticut filed separate lawsuits against Moody’s and S&P in March, 2010 related to alleged misrepresentations the companies made about their analysis of structured finance securities. These lawsuits are unaffected by today’s settlements and remain pending in Connecticut Superior Court.

View the Moody's Settlement Agreement - (PDF - 1.3MB)

View the Standard and Poor's Settlement Agreement - (PDF - 1.3MB)

View the Fitch Settlement Agreement - (PDF - 1.2MB)