S&P to pay $1.4 billion in landmark settlement

Standard & Poor's has agreed to pay nearly $1.4 billion to the U.S. government, as well as 19 states and the District of Columbia, as part of a settlement that alleges the credit rating agency knowingly issued overly-optimistic ratings of mortgage securities -- as part of a series of financial misconduct that helped trigger the Great Recession in 2008.

U.S. Attorney General Eric Holder, speaking at a press conference on Tuesday, said the agreement will resolve the Department of Justice's 2013 lawsuit against S&P, in addition to the other state-initiated litigation, that alleges S&P took part in a scheme to defraud investors.

"On more than one occasion, the company's leadership ignored senior analysts who warned that the company had given top ratings to financial products that were failing to perform as advertised," Holder said.

"As S&P admits under this settlement, company executives complained that the company declined to downgrade underperforming assets because it was worried that doing so would hurt the company's business," he continued.

"While this strategy may have helped S&P avoid disappointing its clients, it did major harm to the larger economy, contributing to the worst financial crisis since the Great Depression."

Holder said that, as part of the settlement, S&P also agreed to a detailed statement of facts that acknowledge its improper conduct -- a statement that should contrast, as the attorney general put it, "what S&P said it was doing with what the company actually did."

But a statement issued by S&P's parent company, McGraw Hill Financial (MHFI), also noted the settlement does not find S&P in violation of the law.

With the S&P settlement underway, the Justice Department is looking at another of the Big Three credit rating agencies, Moody's, regarding similar allegations of misconduct.

The role of the credit agencies in the events leading up to the financial crisis is already well-known.

In 2011, the bipartisan Financial Crisis Inquiry Commission issued its year-long investigation into the causes of the economic melt-down. And as part of its conclusions, the commission criticized the credit rating agencies as being "essential cogs in the wheel of financial destruction" by enabling the economic crisis.

"The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval," it added. "Investors relied on them, often blindly. In some cases, they were obligated to use them, or regulatory capital standards were hinged on them. This crisis could not have happened without the rating agencies."