Tuesday, January 17, 2017

AG gets $26 million from Moody's

Attorney General Jim Hood issued the following statement. 

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, which were powerful, repeat customers that paid Moody’s millions of dollars to rate these securities.  The banks needed Aaa ratings in order to sell these securities to institutional investors, such as pension funds and retirement plans. 
“This was a complex case that involved reviewing hundreds of thousands of documents and interviewing dozens of former Moody’s executives in order to understand the full range of this misconduct,” Attorney General Hood said. “I appreciate Attorney General Jepsen and his office, as well as the U.S. Department of Justice, for their partnership. This was a successful federal-state collaboration that demonstrates our commitment to ensuring consumers have a level playing field against powerful corporate interests.”
As part of the settlement, Moody’s has agreed to a detailed statement of facts in connection with the way it rated RMBS and CDOs leading up to the financial crisis, and significant compliance terms – including an annual certification by the CEO of Moody’s Corporation, which will be provided to Mississippi every year for the next four years, certifying that Moody’s will follow certain compliance commitments. These compliance measures are designed to address conflicts of interest and to protect the integrity and transparency of rating methodologies in order to prevent the problems that created the 2008 financial crisis from occurring again. 
“The credit rating industry was essentially unregulated when we started this case,” Attorney General Hood said. “Since then, the SEC implemented rules in 2014 that came about largely as a result of our litigation against S&P.  In total, the credit ratings agencies have paid the states and federal government $2.2 billion to settle our claims of deceptive conduct and violations of federal law.  This is a substantial sum that will deter similar misconduct in the future.  Just as importantly, these settlements have shifted core policies and procedures in the credit rating industry such that Moody’s and S&P now operate in a way that is more transparent, independent and objective.  Consumers and the investing public have better protections as a result of our successes here.”
In addition to Mississippi, the states involved in the settlement are Arizona, California, Connecticut, Delaware, Idaho, Illinois, Indiana, Iowa, Kansas, Maine, Massachusetts, Maryland, Missouri, New Hampshire, New Jersey, North Carolina, Oregon, Pennsylvania, South Carolina and Washington as well as the District of Columbia.


Anonymous said...

Excellent work by the General. Compare to SOS Hoseman meager penalty against Morgan Stanley!

Anonymous said...

Did the State of Mississippi lose money as a result of Moodys actions? If citizens lost money, will the proceeds be paid to them? I do not understand this.

Anonymous said...

Why doesn't Morgan Stanley just pay for four patrol schools --- one at each of the four state academies?? Yes, there are four law enforcement academies in the state.

Anonymous said...


Sign that guy up!

Or will attorney fees swallow a good chunk of the award.

Anonymous said...

who was the n"of counsel" private attorney on this deal?

Daves not here said...

I would like to see the pigs fighting in the traugh when hood dumps the cash in.

Anonymous said...

I made 33% of the fee.....so after taxes I net about 6 million.

Thanks guys.

Headed to Europe for a few years....y'all enjoy Trump and a 10,000 Dow plunge and real estate collapse.

Anonymous said...

Gee, where are all the Hood bashers that commented on the Google suit?

Better to have money to spend than to not win and have none.

The question is whether or not the AGs office had the hours needed and expertise needed to win this suit and if not, why not?

And, the same is true for Hoseman. Would the added expense justify a different approach.

So weary of those of you who just are party hacks or so gullible as to believe anything fed to them by the hacks.

You don't want good government. You just want your party to win no matter how awful the candidate because you will feel empowered and in control or you can't entertain that you and your party aren't always right about everything!

You don't care if your party member does something stupid, you'll rationalize it or spin it. But, you'll exaggerate mistake in word or deed by the other party.

Hate to break the news to you loyalists or egoistical folks, but your parties are made up of humans. Human are not perfect. Humans do the best they can with the tools they have even when they are doing their best.

Please try to look at your own biases first, not last and look for reality, not what you want to believe is true. Look to your own imperfections and biases first.

Anonymous said...

8:03, no question the economy, the stock market and the real estate market have been in a bubble due to near zero interest rates. All to prop up Obama and hide the effects of his tyrannical regulations and tax increases.

Anonymous said...

8:03 did you happen to notice how the stock market jumped as soon as Trump won the election? How about all of the companies who decided to put Americans back to work.

Anonymous said...

10:12 AM

yes..all of the companies who said trump had no effect whatsoever on their years long plans to build plants here....if you wish to believe the con man in chief every time he points to a hire....that's certainly your right....but most people know hes a blowhard.

Anybody who studied business knows trade wars are bad for the economy and tariffs cause depressions.

I hope you have a cane pole and like to eat catfish....because Trump is going to ruin this place.

Anonymous said...

Funny that the companies were leaving the U.S. when Obama was president but as soon as Trump was elected things started to change.

What trade wars? Getting a better trade deal isn't trade wars. Obama just never had a real job or owned anything the govt. didn't give him. It was hard for him to do something he knew nothing about. Tariffs causing depression. Where did you go to school?

Just knowing Trump will change many things Obama did has caused this country to start looking ahead. More people working, companies building new plants, stock market setting records.
Don't let your sour grapes keep you from benefitting from a better economy.
Hillary for dog catcher.

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