Attorney General Kamala D. Harris Announces $210 Million Settlement with Standard & Poor’s For Inflating Mortgage-Backed Securities Ratings

Tuesday, February 3, 2015
Contact: (916) 210-6000,

SAN FRANCISCO – Attorney General Kamala D. Harris, along with the U.S. Department of Justice and the attorneys general of eighteen states and the District of Columbia, today announced a settlement with Standard & Poor’s Financial Services LLC (S&P) and its parent company, McGraw-Hill Financial Inc., to resolve federal and state civil claims related to S&P’s conduct in inflating ratings of residential mortgage-backed securities and structured investment vehicle notes.  

Combined with a separate settlement also announced today resolving a lawsuit filed by the California Public Employees’ Retirement System (CalPERS), S&P will pay a total of $1.5 billion to federal and state government entities. The State of California, through Attorney General Harris’ office, will recover $210 million in damages, from which CalPERS and the California State Teachers’ Retirement System (CalSTRS) will receive allocations for their losses on investments of certain S&P-rated securities.  Separately, S&P will also pay CalPERS $125 million to settle CalPERS’ specific lawsuit.  The remainder of the total settlement proceeds will be distributed amongst the U.S. Department of Justice and the other nineteen attorneys general.   

 “S&P profited by misleading investors who trusted its ratings,” Attorney General Harris said. “California’s public pension funds suffered significant losses due to S&P’s failure to honestly and accurately disclose the risk of the very investments that caused an international economic recession.  This settlement holds S&P accountable for financial losses caused by these misrepresentations and compensates our pension funds.”

This settlement is the latest in several resolutions holding responsible the institutions that contributed to the financial crisis.  To date, Attorney General Harris has recovered over $900 million for California’s public pension funds.  In August 2014, Attorney General Harris announced a $300 million settlement with Bank of America over its misrepresentations in residential mortgage-backed securities sold to CalPERS and CalSTRS.  Similar settlements were reached in July 2014 with Citigroup Inc. for nearly $200 million and in November 2013 with J.P. Morgan Chase & Co. for $300 million.

An investigation conducted by Attorney General Harris showed that S&P systematically misrepresented to the public, and to CalPERS and CalSTRS, that its ratings of structured finance securities were based on an objective and reliable analysis and not influenced by S&P’s economic interests.  Investors relied on these ratings to invest in the structured finance securities, the collapse of which led to the financial crisis.  

As part of the settlement, S&P agreed to a statement of facts which indicate that, despite its claims of objectivity and independence, it overruled the recommendations of its ratings experts out of concern that S&P’s business would be harmed if the company did not rate its clients’ securities positively.  The settlement does not absolve S&P or its employees from any possible criminal charges.

The settlement with S&P arises from the investigation into mortgage-backed securities by Attorney General Harris’ Mortgage Fraud Strike Force, which was formed in May 2011 to comprehensively investigate misconduct in the mortgage industry.  The Attorney General's additional efforts to investigate the mortgage crisis include securing approximately $20 billion for California in the National Mortgage Settlement and sponsoring the California Homeowner Bill of Rights, a package of laws instituting permanent mortgage-related reforms.

For more information on the U.S. Department of Justice settlement, visit:

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