Jackson Free Press

The Mississippi Attorney General's Office released this statement:

AG HOOD SECURES $26 MILLION FOR MISSISSIPPI IN SETTLEMENT WITH MOODY’S Rating service to pay nearly $864 million to states, federal government over claims of deceptive conduct

JACKSON— Attorney General Jim Hood announced today that Moody’s will pay Mississippi more than $26 million to settle allegations that the credit rating agency engaged in deceptive conduct during the height of the financial crisis.

Moody’s Corporation, Moody’s Investors Service, Inc., and Moody’s Analytics, Inc. agreed to pay a total of $863,791,823 to 21 states, the District of Columbia and the federal government to resolve claims that Moody’s misrepresented its independence and objectivity when rating structured finance securities. Attorney General Hood’s lawsuit alleged that Moody’s ratings of structured finance securities were tainted by the company’s drive to win business and its concerns for market share. Structured finance securities, particularly those comprised of sub-prime mortgages, were at the center of the financial crisis.

In addition to the monetary settlement, Moody’s has agreed to take specific compliance measures intended to prevent the same problems from ever reoccurring.

Attorney General Hood and Connecticut Attorney General George Jepsen led the investigation in conjunction with the U.S. Department of Justice. The two AGs also led the multistate litigation against Standard & Poor’s, which culminated in a $1.375 billion settlement for 20 states and the federal government in 2015. Standard & Poor’s is a competitor of Moody’s. Mississippi received $33 million in the settlement with S&P.

“Moody’s reckless conduct went unchecked for years, feeding a subprime mortgage bubble,” Attorney General Hood said. “While Moody’s profited handsomely, the economy crumbled as people lost their homes. Pension funds, retirement funds, and other investment vehicles in Mississippi and across the country lost billions of dollars as the value of securities with inflated ratings plummeted. This settlement is another important step toward holding accountable those responsible for our mortgage crisis.”

The settlement is the successful culmination of five years of hard-fought litigation for Mississippi, Attorney General Hood said. In 2011, the Attorney General sued both Moody’s and Standard & Poor’s for violations of the Mississippi Consumer Protection Act. The lawsuit alleged that the companies misrepresented their independence and objectivity when rating structured finance securities, including residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs), which derive their value from the monthly payments consumers make on their mortgages.

Mississippi’s lawsuit alleged that Moody’s assigned inflated credit ratings to toxic assets packaged and sold by the Wall Street investment banks in an effort to curry favor, continue and grow business with these banks. This alleged misconduct mainly occurred between 2004 and 2007, though it began as early as 2001.

Moody’s represented to consumers that its Aaa rating, its highest rating, carried a lower level of risk than other ratings. The Attorney General alleged that Moody’s manipulated its process so that, in reality, the Aaa rating represented a greater risk than Moody’s disclosed to investors. The lawsuit asserts that Moody’s gave in to pressure from big banks, …