S&P Ends Legal Woes Paying $1.5 Billion Fine To U.S., States

Investigation Timing

The Justice Department has said its investigation predated any alleged comments Geithner made to McGraw.

S&P’s lawyers asked the government to hand over documents related to its decision to sue the company. In April 2014, David Carter, a federal judge in Los Angeles, ruled that the company should be allowed to see the documents.

A few months later, government attorneys contacted S&P’s lawyers about a possible settlement, according to a person with knowledge of the matter.

Meanwhile, McGraw Hill’s legal strategy had begun to shift. In July 2014, new chief executive officer Douglas Peterson hired Lucy Fato as the firm’s top lawyer and moved to wrap up the claims.

The settlement also reflects concessions from the government, which had sought as much as $5 billion in civil penalties against S&P for losses by federally insured financial institutions that relied on the company’s investment-grade ratings for mortgage-backed securities and collateralized-debt obligations.

SEC Case

In its bid to put legal wrangling behind it, S&P also resolved a case with the Securities and Exchange Commission Jan. 21. The company agreed to pay almost $80 million to state and federal authorities over claims it misled investors in 2011 about ratings of commerical-mortgage backed securities. S&P accepted a one-year suspension in part of that market.

McGraw Hill, which was founded in 1888, has transformed itself into a financial services provider after selling its publishing division to Apollo Global Management LLC in March 2013 for $2.4 billion. S&P now makes up about half of McGraw Hill’s revenue. Other businesses include S&P Dow Jones Indices, which licenses benchmarks, and financial data provider S&P Capital IQ.

Separately, the Justice Department is seeking to advance a more-than-five-year probe into whether Moody’s Investors Service inflated ratings during the U.S. housing boom, three people familiar with the matter told Bloomberg News Sunday.

The U.S. government is continuing interviews with former Moody’s executives on whether the credit rater bent criteria on how to assess structured-finance products to win business from Wall Street banks, according to two people familiar with the matter. It’s unclear whether the probe will result in a lawsuit, and any action against the company wouldn’t be imminent, one of the people said. All three of the people asked not to be identified because the investigation is ongoing.