Moody’s Corp. agreed to pay nearly $864 million to settle federal
and state claims, acknowledging that they did not follow their own standards
and inflated ratings to risky mortgage investments.
$437.5 million will go to the Justice Department and $426.3 million will
be divided between 21 states and the District of Columbia. Moody’s
Corp. is the world’s second largest credit ratings agency and, in
failing to rate the risk of securities in the years leading up to the
financial crisis, they helped cause the housing market to collapse.
In addition to the sizeable settlement, Moody’s agreed to enact some
reforms designed to ensure objectivity in its credit ratings. This will
also include separating commercial and credit rating functions and having
their methods independently reviewed.
Moody’s is not the first agency to come under fire for allegations
regarding inflated ratings. The world’s largest ratings agency,
Standard & Poor’s, was in the same hot water two years earlier,
and agreed to pay nearly $1.4 billion, which was divided between the Justice
Department, 19 states and the District of Columbia.
Fitch, another major ratings agency, was criticized for giving low-risk
ratings and gaining large profits in fees. These practices are what sparked
the string of financial collapses in 2008, eventually causing the worst
recession in the country since the Depression.
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