Pennsylvania Record

Monday, September 16, 2019

Pennsylvania to receive share of $1.375 billion S&P settlement

By Jim Boyle | Feb 4, 2015

HARRISBURG - Pennsylvania will receive a share of the $1.375 billion settlement reached

between the federal government and the credit rating agency Standard & Poor's Financial Services (S&P).

According to a statement from the Attorney General's Office, Pennsylvania joins 18 other states and the District of Columbia in splitting up the settlement, receiving $21.5 million, the bulk of which will be allocated to state agencies that had purchased securities that were the focus of the Commonwealth's litigation.

The settlement resolves allegations of misconduct by S&P involving securities backed by residential mortgages that were at the heart of the nation's 2008 financial crisis.

"We contend that Standard & Poor's set aside its independence and objectivity in order to increase its profits, which led to disastrous results for consumers and the economy," state Attorney General Kathleen Kane said.

"This historic settlement ends years of litigation against an industry giant and holds this company accountable for its role in the financial crisis. Attorneys General from across the country and the federal government joined together in a bipartisan fashion to show that no company is above the law."

The Commonwealth maintained that Standard & Poor's allowed its credit ratings to be influenced by its own financial interests, thereby misrepresenting its own independence and the reliability of its credit ratings.

The securities at the center of the crisis, including residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs), derive their value from the monthly payments consumers make on their mortgages.

In addition to the financial settlement, S&P has agreed to a statement of facts acknowledging conduct related to its analysis of structured finance securities. S&P also agrees in the settlement to comply with all applicable state laws and for five years will cooperate with any request for information from any state expressing concern over a possible violation of state law.

Further, the states retain authority to enforce their laws – the same laws used to bring these cases – if S&P engages in similar conduct in the future.

The states and federal government have agreed to file stipulated judgments, consent judgments or similar pleadings in their lawsuits in order to implement the terms of the settlement agreement and resolve their respective court proceedings. Pennsylvania will be filing a consent petition in the Commonwealth Court seeking approval of the settlement.

The total settlement amount represents approximately the amount of domestic revenues S&P derived from its ratings of RMBS and CDOs from 2001 to 2007, the critical years when the mortgage bubble grew rapidly and then ultimately burst.

Of the Commonwealth's share of the settlement, $15 million will be distributed to the Treasury, Public School Employee's Retirement System (PSERS), State Employees' Retirement System (SERS), Pennsylvania Municipal Retirement System (PMERS) and the Turnpike Commission.

The Attorney General's Office will set aside $5 million to offset litigation costs and to be utilized for future public protection purposes, and six state entities will receive $250,000 each for costs associated with the litigation.

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