"Moody`s failed to adhere to its own credit-rating standards and fell short on its pledge of transparency in the run-up to the Great Recession," Principal Deputy Associate Attorney General Bill Baer said in the statement.
S&P Global`s (SPGI.N) Standard & Poor`s entered into a similar accord in 2015 paying out $1.375 billion. Standard and Poor`s is the world`s largest ratings firm, followed by Moody`s.
Moody`s said it would pay a $437.5 million penalty to the Justice Department, and the remaining $426.3 million would be split among the states and Washington, D.C.
As part of its settlement, Moody`s also agreed to measures designed to ensure the integrity of credit ratings going forward, including keeping analytic employees out of commercial-related discussions.
The rating agency`s chief executive also must certify compliance with the measures for at least five years.
Moody`s said that it stands behind the integrity of its ratings and noted that the settlement contains no finding of a violation of law or admission of liability.
Moody`s said it already has implemented some of the compliance measures in the agreement.
Moody`s shares closed at $96.96 on Friday. The stock plummeted more than 5 percent on Oct. 21, the day it disclosed the Justice Department had notified the firm it was planning to sue over the ratings.
Moody`s settlement on Friday resolved the Justice Department probe without a federal lawsuit. In the Standard & Poor`s case, resolution was reached after the U.S. filed a $5 billion fraud suit.
Connecticut, whose attorney general helped lead negotiations, filed a lawsuit against Moody`s in 2010. Mississippi and South Carolina later sued, and other states had potential claims.
Connecticut`s lawsuit claimed that Moody`s ratings were influenced by its desire for fees, despite claims of independence and objectivity. It also accused Moody`s of knowingly inflating ratings on toxic mortgage securities.
Moody`s ratings were "directly influenced by the demands of the powerful investment banking clients who issued the securities and paid Moody`s to rate them," Connecticut Attorney General George Jepsen said in a statement on Friday.
/Reuters/
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