Standard & Poor’s on the Verge of Civil Settlement Over Real-Estate Bond Ratings, Reports WSJ

According to The Wall Street Journal, Standard & Poor’s Ratings Services is close to arriving at a securities settlement with regulators over the way they graded real-estate bonds. The agreement would resolve claims by the U.S. Securities and Exchange Commission, Massachusetts Attorney General Martha Coakley, and New York Attorney General Eric Schneiderman.

The proposed deal is over six commercial real estate bond ratings issued by the credit rater in 2011. In July of that year, S & P withdrew a preliminary rating on a $1.5 billion security comprised of commercial real-estate loans. The decision made debt issuers and investors very angry. (The deal was later partially overhauled and eventually went to market.)

S & P discovered discrepancies in the way its ratings methodology applied for commercial real estate deals. However, it said the incongruence was not outside what is considered an acceptable range. Still, investigators were compelled to look at the withdrawn rating and other deals from that period.

Any settlement reached may result in a suspension for S & P from certain ratings deals—conduit deals, in particular. The credit rater may also be ordered to pay a fine of at least $60 million, which is what its parent company McGraw Hill Financial Inc. took as an accounting charge for third quarter earnings in the wake of these ongoing discussions with regulators.

Lawmakers and others have accused credit rating agencies of playing a big part in causing the 2008 economic crisis. They say that to win business, these companies put out positive ratings for mortgage bonds that eventually failed. Aside from this case, S & P is also dealing with cases brought by pension funds and states. It is also the defendant in a $5 billion lawsuit filed by the U.S. Department of Justice.

Our bond fraud lawyers represent investors seeking to recoup their investment losses.

S&P Nears Settlement on Real-Estate Bond Ratings, The Wall Street Journal, December 25, 2014

U.S. Confident Its $5 Billion S&P Lawsuit Was Not Retaliation, Business Insider, August 25, 2014

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Attorney Generals Want Securities Cases Against Standard Poor’s To Go Back to State Courts, Institutional Investor Securities Blog, August 21, 2013

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