S&P nearing $1 billion deal over U.S. fraud lawsuit

Standard and Poor's is expected to pay just over $1 billion to settle lawsuits from the U.S. government and several states that had accused the McGraw Hill Financial Inc unit of inflating credit ratings on toxic assets before the 2008 financial crisis, according to a person familiar with the matter.

The settlement could take another two months to finalize, the person said. The final amount could still fluctuate as all the states involved sign on, according to the source.

The Justice Department case, filed in 2013 in California, accused S&P of inflating its ratings to win more business, and failing to downgrade troubled mortgage-backed debt fast enough.

The lawsuit claims investors including federally insured financial institutions lost billions of dollars after buying collateralized debt obligations on which S&P had misrepresented the risks.

Justice Department officials had demanded S&P pay at least $1 billion to resolve the case before it was filed, but the company had balked at the time. The government sued in February 2013, alleging that insured institutions had suffered more than $5 billion in losses due to the failed securities between March and October 2007 alone.

Reuters could not determine how the government and S&P arrived at the potential settlement amount. The Justice Department often demands harsher punishment for individuals or companies that do not choose to resolve cases early.

A settlement would close another chapter of the alleged fraud that helped lead to the 2008 crisis, as mortgage brokers, banks, ratings agencies and others fueled a massive real estate bubble and overlooked potential risks.

Representatives of S&P, the Justice Department, and the Connecticut Attorney General, who has played a leading role in a multistate coalition that filed related cases, declined comment.

S&P has argued its ratings are opinions protected by the U.S. Constitution's First Amendment.

The prospect of a settlement was reported earlier on Tuesday by the New York Times.

The case is U.S. v. McGraw-Hill Cos et al, U.S. District Court, Central District of California, No. 13-00779.

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Standard and Poor, McGraw Hill Financial, S&P

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