February 3, 2015

Attorney General George Jepsen announced today that Connecticut, the U.S. Department of Justice, 18 states and the District of Columbia have reached a settlement agreement with Standard & Poor's Financial Services LLC (S&P) resolving allegations that S&P mislead investors when it rated structured finance securities in the lead-up to the 2008 financial crisis.

The settlement culminates a five-year effort led by Connecticut to hold S&P responsible for its role in the 2008 financial crisis.

The settlement requires S&P to pay $1.375 billion to the states and the Department of Justice.  The settlement amount will be split equally among the states and the Department of Justice. Connecticut was the first state to sue S&P in 2010 and will receive $36 million in the settlement, which will go to the state's general fund. Attorney General Jepsen joined U.S. Attorney General Eric Holder at the Department of Justice for the announcement. 

"Today's settlement is the product of years of hard-fought litigation and reflects the strength of the cases developed by our coalition of states with the Department of Justice," said Attorney General Jepsen. "We alleged that S&P's ratings of structured finance securities, including risky mortgage-backed securities, were directly influenced by the demands of the powerful investment banking clients who issued the securities and paid S&P to rate them. In effect, S&P considered its own business interests, contrary to its public statements that its ratings were objective. These actions had a very direct and serious impact on our national economy that is still being felt in communities and households in Connecticut and across our country. I am especially proud that it was the Connecticut Office of the Attorney General that developed the unique legal theory that has been foundational to the lawsuits filed in all 20 states and by the Department of Justice."

The federal and state complaints against S&P alleged that, despite S&P's repeated statements emphasizing its independence and objectivity, the credit rating agency allowed its analysis to be influenced by its desire to earn lucrative fees from its investment bank clients. The lawsuits further alleged that the agency knowingly assigned inflated credit ratings to toxic assets packaged and sold by the Wall Street investment banks. The alleged misconduct began as early as 2001 and became particularly acute between 2004 and 2007.

Structured finance securities backed by subprime mortgages were at the center of the 2008 financial crisis. These financial products, including residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs), derive their value from the monthly payments consumers make on their mortgages.

In addition to the financial settlement, S&P has agreed to a statement of facts acknowledging conduct related to its analysis of structured finance securities. S&P also agrees in the settlement to comply with all applicable state laws, including Connecticut's Unfair Trade Practices Act, and for five years will cooperate with any request for information from any state expressing concern over a possible violation of state law. Further, Connecticut and other states retain authority to enforce their laws – the same laws used to bring these cases – if S&P engages in similar conduct in the future. The states and federal government have agreed to file stipulated judgments, consent judgments or similar pleadings in their lawsuits in order to implement the terms of the settlement agreement and resolve their respective court proceedings.

In August 2014, the United States Securities and Exchange Commission adopted new requirements for credit rating agencies that address conflicts of interest and procedures to protect the integrity and transparency of rating methodologies and that provide for certifications to accompany credit ratings attesting that the ratings were not influenced by other business activities.

Attorney General Jepsen thanked Connecticut's federal and state partners for the cooperation and coordination that led to today's settlement announcement.

"Today's settlement – like previous multistate actions and investigations still pending – is a fine example of the results that state attorneys general are able to achieve, working with the Department of Justice, on a bipartisan basis," the Attorney General said.  "We would not have been able to achieve such a strong result if it were not for the strong partnership and hard work of the Department of Justice and our sister states. I thank Attorney General Holder and each of the attorneys general from the settling states for their efforts in this case." 

In addition to Connecticut, the states involved in today's settlement include Arizona, Arkansas, California, Colorado, Delaware, Idaho, Illinois, Indiana, Iowa, Maine, Mississippi, Missouri, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee and Washington as well as the District of Columbia.

Attorney General Jepsen particularly thanked Mississippi Attorney General Jim Hood, president of the National Association of Attorneys General, for his partnership throughout this case and for joining Connecticut early in this historic effort. Mississippi and Connecticut both have pending lawsuits for similar alleged misconduct against Moody’s Investors Service, Inc. Those cases have been temporarily stayed pending resolution of the S&P case.

Assistant Attorneys General Matthew Budzik, head of the Finance Department; George O'Connell; Jeremy Pearlman; Lorrie Adeyemi; Patrick Ring; Laura Martella; and Michael Cole, chief of the Antitrust and Government Program Fraud Department; and Paralegal Holly MacDonald assisted the Attorney General with this matter.

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