INDIANAPOLIS, Ind. – Indiana Attorney General Curtis Hill today announced a $12.77 million settlement for Indiana, involving 20 other states, the District of Columbia, and the U.S. Department of Justice. The settlement resolved the Attorney General’s investigation, in collaboration with the Secretary of State, of allegations that Moody’s Corporation, Moody’s Investors Service, Inc., and Moody’s Analytics, Inc. misled investors when it rated structured finance securities leading up to and through the 2008 financial crisis.
The settlement with Moody’s – a corporation made up of companies specializing in business and financial services – is the result of an investigation into the company’s conduct and its representations of independence and objectivity in the rating of structured finance securities. Structured finance securities, including residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs), are complex investments that derive their value from the monthly payments on underlying debt instruments, such as consumer mortgages.
These securities, particularly those backed by subprime mortgages, were at the center of the financial crisis of the mid-to-late 2000s. Despite repeated statements emphasizing its independence and objectivity, the states and Department of Justice allege that Moody’s allowed their analysis to be influenced by their desire to earn lucrative fees from their investment bank clients, when they assigned credit ratings to toxic assets packaged and sold by the Wall Street investment banks.
“Investors believed they were getting honest, objective analysis. But in reality, Moody’s entities were misleading the investing public, baiting them with questionable ratings, and doing so at a time when investors were becoming increasingly vulnerable,†Hill said. “Today’s settlement is a product of the hard work that our Consumer Protection Division dedicated to this case.â€
Hill would like to especially thank Deputy Attorneys General Justin Hazlett, Amanda Lee and their team for the role each played in this resolution. Indiana’s $12.77 million share of the nearly $864 million multi-state settlement will go toward consumer and investor protection and related purposes.
In addition to the monetary settlement, Moody’s entities have agreed to significant compliance terms to ensure they conduct their ratings activities independently and objectively – including an annual certification by the CEO of Moody’s Corporation, which will be provided to Indiana every year for the next four years, certifying that Moody’s is following certain compliance requirements.
This is the second case of its nature to come through the Office of the Indiana Attorney General. In 2015, the Attorney General’s Office recovered $21.5 million from a similar settlement with Standard & Poor’s, after suing the company for similar deceptive conduct.
