(Bloomberg) — Moody's Investors Service Inc. agreed to pay $130 million to settle claims by the California Public Employee Retirement System over allegedly inflated ratings on residential-mortgage bond deals.
The largest U.S. state pension fund's accord with Moody's means the company averts a trial over the securities that was to begin in May. The settlement follows the related February 2015 announcement that McGraw Hill Financial Inc.'s Standard & Poor's paid $125 million to settle claims by Calpers over grades on subprime mortgages during the run-up to the 2008 financial crisis.
With Tuesday's announcement, ratings companies have paid Calpers $255 million to resolve such claims, the retirement system said.
The conclusion of the investor suit comes as the U.S. Justice Department is deciding whether it will sue Moody's Corp. over similar claims about mortgage bonds at the heart of the financial meltdown, according to people familiar with the matter. The multiyear inquiry into Moody's was among the remaining live investigations into the mortgage lenders, Wall Street banks and ratings firms that the government has sought to hold accountable for the crisis. A year ago Standard & Poor's paid $1.5 billion to resolve allegations that it inflated ratings to gain business during the housing boom.
Shareholder benefit
"The resolution of this long-running litigation, which concerns three structured investment vehicles that Moody's rated in 1995, 2002 and 2005, is in the best interest of our company and its shareholders," Michael N. Adler, a Moody's spokesman, said Wednesday by e-mail.
Moody's said in October that since 2007 almost 60 cases over bond ratings had been filed, and that fewer than 20 percent of them remain unresolved. Internationally, six such cases remained as of September, according to Moody's, while 21 of those suits have been dismissed or withdrawn.
Matthew Jacobs, general counsel for Calpers, said the settlement "restores money that belongs to our members and employers."
