Illinois to get $52.5 million from $1.4 billion S&P settlement
Standard & Poor's Rating Services' tab is $1.38 billion — including $52.5 million for Illinois — to resolve long-standing allegations by federal and state authorities that the firm misled investors in the run-up to 2008's financial collapse.
The dollar figure attached to the pact with the world's biggest ratings firm, announced Tuesday by the Justice Department and 20 state attorneys general, is larger than the company's profits earned from rating mortgage-backed securities from 2002 to 2007.
In Illinois, the funds will go toward restoring the losses on the investments by Illinois' pension system, Illinois Attorney General Lisa Madigan said.
The settlement comes as reports surface that the Justice Department has been meeting with Moody's Investors Service over similar allegations.
"This kind of conduct will never be tolerated by the Department of Justice," U.S. Attorney General Eric Holder said at a Washington news conference. "It also underscores our strong and ongoing commitment to pursue any company or entity that violated the law and contributed to the financial crisis of 2008."
But unlike the aftermath of the savings and loan crisis of the 1980s, no executive tied to the financial and housing crisis has been criminally prosecuted.
Illinois was among the first states to sue S&P. That lawsuit, filed in 2012 in Cook County Circuit Court, alleged that S&P fraudulently boosted the ratings of risky mortgage securities, compromising its independence, to boost its revenue and market share. Further, Illinois charged that the sale of those risky investments laid the groundwork for the nation's housing crisis and financial meltdown as investors lost billions of dollars tied to bonds backed by risky subprime mortgage loans.
In 2013, Illinois and other states joined a 128-page suit filed by the Justice Department that sought to prosecute S&P for actions the government alleged the firm knew to be deceptive.
The settlement will be shared by the federal government, 19 states and Washington, D.C. It still requires court approval.
"S&P abandoned its critical role in the years leading up to the economic crisis," Madigan said during a news conference in Chicago, adding that the company relaxed its ratings criteria and didn't update analytical models. "The economic crisis could have been prevented if S&P had done its job. The company betrayed its responsibility."
An internal email included in the suit from March 2007 by an analyst who had been studying residential mortgage-backed securities to several of his colleagues riffed on the Talking Heads' "Burning Down the House," detailing the demise of subprime mortgages.