A lawsuit originated by the state attorney general’s office in 2010 against one of the villains in “The Big Short,” the book-and-movie depiction of the factors behind the 2008 market collapse, ended Friday with an $864 million national settlement that will bring Connecticut’s general fund $31.5 million.
Moody’s, the nation credit rating agency, settled with Connecticut, 19 other states and the Department of Justice to resolve allegations it misled investors about the quality of relatively exotic investments known as residential mortgage-backed securities and collateralized debt obligations.
“We alleged that Moody’s ratings of structured finance securities, including mortgage-backed securities, were directly influenced by the demands of the powerful investment banking clients who issued the securities and paid Moody’s to rate them,” Attorney General George Jepsen said in a statement issued Friday night. “Moody’s considered its own business interests, contrary to its public statements that its ratings were objective, and the results to our state and national economy were dramatic and devastating.”
Connecticut alleged that the agency inflated credit ratings of toxic assets packaged and sold by the Wall Street investment banks, beginning in 2001 and accelerating from 2004 to 2007.
“I am especially proud that it was the Connecticut Office of the Attorney General that developed the unique legal theory that proved foundational in both this case and the similar case against Standard & Poor’s that we settled last year,” Jepsen said. “We would not have been able to achieve such a significant result if not for the strong partnership among the Department of Justice and our fellow states, and I’m grateful for their efforts on this case.”
Moody’s is paying $437.5 million to the Department of Justice and $426 million to the states. Connecticut and Mississippi, a state that partnered with Connecticut in the early days of the litigation, will collect the largest share after California.