Moody’s Agrees to Settlement With States and Federal Government Over Securities Ratings

States, USDOJ Alleged Moody’s Inflated Ratings and Contributed To Market Crash.

Attorney General Matt Denn joined the U.S. Department of Justice and 20 other attorneys general in announcing a settlement resolving an investigation into Moody’s Corporation, Moody’s Investors Service, Inc., and Moody’s Analytics, Inc. (collectively “Moody’s”) over the companies’ misrepresentations regarding the independence and objectivity of its ratings of structured finance securities, securities which contributed to the 2008 market crash and economic recession that followed.

The settlement includes required business reforms by Moody’s and payments totaling $863 million to the federal government and states.

The residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs) examined in this investigation are structured finance securities that derive their value from the monthly payments consumers make on their mortgages. Despite repeated statements emphasizing its independence and objectivity, Moody’s allowed its analysis to be influenced by its desire to earn lucrative fees from its investment bank clients, and assigned inflated credit ratings to toxic assets packaged and sold by the Wall Street investment banks. This alleged misconduct began as early as 2001, and became particularly acute between 2004 and 2007. These securities, particularly those backed by subprime mortgages, were at the center of the financial crisis. The state does not allege that Moody’s committed any wrongdoing against any individual homeowner with respect to a mortgage.

Moody’s represented to consumers that its Aaa rating carried a specific level of risk, and the investigation found evidence that Moody’s altered its process so that the Aaa rating with respect to certain structured finance securities represented a greater risk than Moody’s disclosed to investors and consumers. Delaware’s investigation found evidence that Moody’s deviated from certain of its published methodologies related to its rating of structured finance securities through the end of 2013. The investigation also found evidence that Moody’s gave in to pressure from big banks, which were powerful, repeat customers that paid Moody’s millions of dollars to rate these securities. The banks needed Aaa ratings in order to sell these securities to institutional investors, such as pension plans and retirement plans.

In addition to the monetary settlement, Moody’s has agreed to a detailed statement of facts in connection with the way it rated RMBS and CDOs leading up to the financial crisis, and significant compliance terms – including an annual certification by the CEO of Moody’s Corporation, which will be provided to the settling states every year for the next four years, certifying that Moody’s is following certain compliance requirements. Delaware’s share of the financial component of the settlement is $6,768,533.

Delaware was represented by Deputy Attorneys General Matthew Lintner, Gregory Strong, and Jillian Lazar in this matter.

Read the U.S. Department of Justice press release, which includes links to the settlement documents, here.

Maker of Opioid Addiction Treatment Drug Suboxone Accused of Conspiring to Keep Monopoly Profits

Delaware Attorney General Matt Denn and other attorneys general yesterday filed an antitrust lawsuit against the makers of Suboxone, a prescription drug used to treat opioid addiction, over allegations that the companies engaged in a scheme to block generic competitors and cause purchasers to pay artificially high prices.

Reckitt Benckiser Pharmaceuticals, now known as Indivior, is accused of conspiring with MonoSol Rx to switch Suboxone from a tablet version to a film (that dissolves in the mouth) in order to prevent or delay generic alternatives and maintain monopoly profits.

The companies are accused of violating state and federal antitrust laws.

“Deaths from opioid abuse remain a significant problem in Delaware, with statistics showing Delaware having the ninth highest drug overdose rate in the country in 2013,” said Attorney General Denn. “Medically assisted treatment of substance use disorder is an important part of addressing this problem, and the cost of such treatment is one of the barriers to providing it. So although we are concerned with any behavior that violates antitrust laws, our concern is heightened when the result is artificially heightened prices for a drug used to help address this critical problem in our state.”

According to the lawsuit, when Reckitt introduced Suboxone in 2002 (in tablet form), it had exclusivity protection that lasted for seven years, meaning no generic version could enter the market during that time. Before that period ended, however, Reckitt worked with MonoSol to create a new version of Suboxone – a dissolvable film, similar in size to a breath strip. Over time, Reckitt allegedly converted the market away from the tablet to the film through marketing, price adjustments, and other methods. Ultimately, after the majority of Suboxone prescriptions were written for the film, Reckitt removed the tablet from the U.S. market.

The attorneys general allege that this conduct was illegal “product hopping,” where a company makes modest changes to its product to extend patent protections so other companies can’t enter the market and offer cheaper generic alternatives. According to the suit, the Suboxone film provided no real benefit over the tablet and Reckitt continued to sell the tablets in other countries even after removing them from the U.S. market. Reckitt also allegedly expressed unfounded safety concerns about the tablet version and intentionally delayed FDA approval of generic versions of Suboxone.

As a result, the attorneys general allege that consumers and purchasers have paid artificially high monopoly prices since late 2009, when generic alternatives of Suboxone might otherwise have become available. During that time, annual sales of Suboxone topped $1 billion.

The lawsuit, filed in the U.S. District Court for the Eastern Division of Pennsylvania, accuses the companies of violating the federal Sherman Act and state antitrust laws. The attorneys general ask the court to stop the companies from engaging in anticompetitive conduct, to restore competition, and to order appropriate relief for consumers and the states, plus costs and fees.

In addition to Delaware, 35 attorneys general joined in the lawsuit.