It took 8 years for the US Justice Department and 21 States and the District of Columbia to settle the case.  Agreement removes significant legacy legal risk and contains no finding of any violation of law.  It also resolves pending and potential civil claims related to certain credit ratings

  • Moody’s (NYSE:MCO) agrees to pay $864M to the U.S. Department of Justice and 21 states to resolve an investigation involving bond grades it issued before the 2008 housing collapse
  • The ratings agency will pay $437.5M to the DoJ and $426.3M to the states, including $150M to California, an epicenter of the subprime debacle.
  • Moody’s says in the settlement that it at times deviated from methodologies it said it would use to rate mortgage bonds and used a more lenient standard on some complicated bonds than it had disclosed, but the settlement does not contain a finding it violated the law or any admission of liability.
  • Moody’s says it will record an after-tax charge of ~$702M, or $3.62/share, in Q4 2016.

Moody’s Corporation (NYSE:MCO) announced that it has reached an agreement with the U.S. Department of Justice (DOJ) and the attorneys general of 21 U.S. states and the District of Columbia to resolve pending and potential civil claims related to credit ratings that Moody’s Investors Service assigned to certain structured finance instruments in the financial crisis era. The agreement also relates to certain statements made in connection with Moody’s structured finance rating methodologies and procedures during the same period.

After careful consideration, Moody’s determined that the agreement, which removes significant legacy legal risk and avoids costs and uncertainty associated with continued investigations and litigations, is in the best interest of the company and its shareholders. Moody’s stands behind the integrity of its ratings, methodologies and processes, and the settlement contains no finding of any violation of law, nor any admission of liability.

Under the terms of the agreement, Moody’s will pay a $437.5 million civil penalty to the DOJ to resolve potential civil claims asserted under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). The company has also agreed to pay $426.3 million, to be divided among the participating states and the District of Columbia, to resolve pending and potential state civil claims. The financial impact to the Company will be recorded in the fourth quarter of 2016. The estimated impact is an approximate $702 million after-tax charge or approximately $3.62 per share.

The agreement acknowledges the considerable measures Moody’s has put in place to strengthen and promote the integrity, independence and quality of its credit ratings. As part of the resolution, Moody’s has agreed to maintain, for the next five years, a number of existing compliance measures and to implement and maintain certain additional measures over the same period. This agreement is final and is not conditioned on court approval.

Source:  Moody’s Press Release