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S&P agrees to pay 1.38 bln USD to settle charges over inflated ratings of mortgage securities
Last Updated: 2015-02-04 07:24 | Xinhua
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The credit rating agency Standard & Poor's Ratings Services has agreed to pay about 1.38 billion U.S. dollars to settle government allegations that it issued inflated ratings of risky mortgage securities in the lead up to the financial crisis, the U.S. Department of Justice announced Tuesday.

The Justice Department alleged in a statement that investors incurred substantial losses on the structural financial products known as residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs) for which S&P issued inflated ratings that misrepresented the securities' true credit risks during 2004 to 2007.

"On more than one occasion, the company's leadership ignored senior analysts who warned that the company had given top ratings to financial products that were failing to perform as advertised," U.S. Attorney General Eric Holder said at a press conference Tuesday.

"As S&P admits under this settlement, company executives complained that the company declined to downgrade underperforming assets because it was worried that doing so would hurt the company 's business," Holder added. "While this strategy may have helped S& P avoid disappointing its clients, it did major harm to the larger economy, contributing to the worst financial crisis since the Great Depression."

Under the terms of the settlement announced Tuesday, half of the 1.38-billion-dollar payment will go to the federal government, and 19 states and the District of Columbia will share a similar amount.

As part of the settlement, S&P also agreed to retract its earlier allegation that the Justice Department had brought suit in retaliation for the agency's downgrade of the United States' credit rating in 2011.

Last month, S&P agreed to pay the federal and state governments over 77 million dollars to settle charges by the Securities and Exchange Commission that it loosened its rating criteria of certain types of commercial mortgage-backed securities to obtain business.

McGraw Hill Financial, S&P's parent corporation, said Tuesday in a statement that the company and S&P "take compliance with regulatory obligations very seriously and continue to make investments in people and technology to strengthen controls and risk management throughout the organization".

The settlements will be reflected in the company's the fourth quarter and full-year 2014 financial statements to be released on Feb. 12, it added.

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