Remarks for Acting Associate Attorney General Stuart Delery Press Conference Announcing Settlement with S&P

Remarks as prepared for delivery

Thank you, Mr. Attorney General.

During the lead-up to the financial crisis, S&P served as a gatekeeper in the world of sophisticated finance.  S&P repeatedly promised that its ratings were objective, independent, and not influenced by S&P’s relationships with the investment banks that issued the securities.  When the department brought this suit, we alleged, to the contrary, that S&P limited, adjusted and delayed updates to the ratings criteria and analytical models it used in order to preserve market share and profits.  In addition, S&P issued inflated ratings on billions of dollars’ worth of securities despite knowing that the quality of the underlying assets was impaired and that the ratings would not hold.  Put simply: we brought this case because S&P committed fraud. 

And now, as part of today’s settlement, S&P has agreed to a statement of facts that makes the merits of the department’s lawsuit clear.  Among other things, S&P admitted –

• that it promised investors that the fees it collected in connection with its ratings would not be a factor in giving those ratings;

• that, nonetheless, as it was developing its ratings models, its executives set explicit goals for maintaining and increasing S&P’s market share and interfered with the roll-out of an updated rating model so as to protect the company’s business interests;

• that many of the securities that S&P rated highly were based on packages of mortgages that relevant people within the company knew were likely to default; and

that, as the financial crisis gained steam in 2007, S&P continued to issue and confirm positive ratings, despite receiving streams of information that made abundantly clear that those ratings were not justified.

Thus, just as the department alleged in filing its complaint in February 2013, the admissions by S&P after two years of litigation now show that S&P misrepresented itself to the investors and the public, putting profits ahead of unbiased ratings in a manner that fueled the overvaluation of RMBS and contributed to the financial crisis.

I want to draw particular attention to a few features of the resolution announced today.

First, the resolution appropriately reflects the seriousness of S&P’s misconduct.  S&P will pay the largest penalty ever recovered from a rating agency.  And the company will, through this settlement, pay substantially more than it earned from rating the securities in our lawsuit.  Defrauding the American people has consequences.

Second, as the Attorney General said, this resolution proves yet again that those who violate the law cannot evade responsibility through aggressive litigation tactics designed to weaken our resolve and diminish our resources.  S&P propounded sweeping discovery requests.  In response, the department produced some 290 million documents – more than in any other case in its history.  During the investigation and litigation, the parties took over 100 depositions.  S&P also alleged that the department brought its case in retaliation for the decision to downgrade the government’s credit rating.  That was simply wrong.  In response, the department answered the allegation, and after an exhaustive two-year fishing expedition S&P has withdrawn the allegation and acknowledged that nothing in the mountains of information it has received from the government supports S&P’s claim of an improper motive – just as, of course, the department has said from the beginning.  This retraction will be reflected by S&P in a court filing.

Third, the resolution also highlights the importance of a critical legal tool in our fight against financial fraud:  the Financial Institutions Reform, Recovery and Enforcement Act of 1989, or FIRREA.  Enacted in the wake of the savings and loan crisis, FIRREA allows the department to seek civil penalties for certain criminal violations affecting financial institutions, including mail fraud, wire fraud and bank fraud.  In this case, the department once again has demonstrated that FIRREA is a powerful weapon for combatting financial fraud, and a vital mechanism for holding accountable those who violate the law.  

Finally, this settlement confirms the strength of the partnership between the states and the Department of Justice in fighting financial fraud.  I want to thank the committed people from the governments of the 19 states and the District of Columbia that joined us to hold S&P accountable for its actions.  Your commitment to this effort from the very beginning was crucial to achieving the strong result we are announcing today.

Throughout this investigation and litigation, our team remained focused on holding accountable those who broke the law.  Of course, perseverance in a case of this magnitude requires personal sacrifices from many.  I want to recognize the department’s many outstanding attorneys, investigators, and staff, principally from the Civil Division and the Central District of California, who built this case.  I also want to recognize the department’s superb technology professionals who tackled a challenge of maintaining, organizing, and disclosing data on a scale never previously experienced by this department.  This case epitomizes what I see every day: the department’s dedicated career professionals working tirelessly to protect the interests of the American people.

Although there are many who deserve personal recognition, I want to specifically acknowledge the contributions of two exceptional attorneys.

First, former Associate Attorney General Tony West, whose vision and passion played a crucial role in getting us to this point.

And second, Assistant U.S. Attorney George Cardona.  George performed much of the heavy lifting to litigate this case – and did so with unyielding professionalism, sound judgment, and, considering it all, remarkable good humor. 

I’d now like to introduce Attorney General Jepsen.