Photo

On television and in the courtroom, Standard & Poor’s has waged war against a Justice Department lawsuit. But behind the scenes, the giant bond-rating agency wants nothing more than to buy peace.

After S.&P. mounted a two-year campaign to defeat civil fraud charges — portraying them as retaliation for cutting the credit rating of the United States — the ratings agency is now negotiating with the Justice Department to settle the case, according to people briefed on the matter.

For S.&P., which is accused of awarding inflated credit ratings to mortgage investments that spurred the financial crisis, the delay in settling may prove costly. The Justice Department and more than a dozen state attorneys general are demanding that S.&P. pay more than $1 billion to settle the case, the people briefed on the matter said, a penalty large enough to wipe out the rating agency’s entire operating profit for a year.

If S.&P. capitulates to the government’s financial demands — and it has privately signaled a willingness to do so, the people said — the settlement would support the conclusion that it is futile to fight government fines.

The government offered S.&P. roughly the same settlement size, $1 billion plus, before filing suit two years ago. If S.&P. had embraced that offer, instead of fighting accusations that it abused its role as a rating agency, it could have walked away without accumulating tens of millions of dollars in legal fees.

Its recent change of heart, which could lead to a settlement in the first quarter of this year, would provide a coda to a painful period for the ratings agency and the broader financial industry. Ever since the onset of the financial crisis in 2008, banks and other financial firms have collectively paid more than $40 billion as punishment for crisis-era misdeeds.

In case after case, negotiations followed a familiar script: The government demanded an eye-popping penalty, and the Wall Street firm briefly dug in its heels. But S.&P., one of three major agencies offering advice to investors about the quality of debt investments and the only one to face a Justice Department lawsuit, stood out as the rare company to actually follow through and fight the government.

Most Wall Street institutions, when faced with the threat of a Justice Department lawsuit, eventually cut a check rather than go to court: JPMorgan agreed to pay $13 billion to settle a crisis case; Bank of America more than $16 billion.

That settle-at-all-costs mentality stems from fears that a courtroom fight might antagonize the government and unnerve shareholders. It also spares a company the embarrassment of paying the same or even more after a trial, where an anti-Wall Street sentiment might sour the jury pool.

Financial institutions still manage to wring concessions from the government, often persuading prosecutors to water down a statement of facts that accompanies a settlement or provide immunity from other charges. And for all the leverage the government possesses, its approach has not translated into criminal charges against a single top Wall Street executive.

It is unclear whether S.&P., a unit of McGraw Hill Financial, will secure concessions from the government. But even penalties in excess of $1 billion would fall short of the more than $5 billion that the government’s lawsuit demanded.

S.&P.’s willingness to settle partly reflects a change at McGraw Hill’s legal department, which recently installed a new general counsel, Lucy Fato, formerly a partner at the law firm Davis Polk. Under Ms. Fato, S.&P. has aimed to resolve the Justice Department case as well as an unrelated investigation by the Securities and Exchange Commission. (S.&P. has earmarked $60 million to pay the S.E.C. fine, which is expected to be announced in the coming weeks.)

The settlement strategy, which may benefit the company’s stock price in the long run by erasing some of the biggest threats facing S.&P., was born in part of witnessing other Wall Street firms go to trial. Bank of America, for example, fought a crisis case filed by the United States attorney’s office in Manhattan, only to lose at trial and be assessed a nearly $1.3 billion penalty from a federal judge.

To maximize cash payouts, prosecutors have invoked an obscure federal law passed a quarter-century ago after the savings and loan scandals. The law, the Financial Institutions Reform, Recovery and Enforcement Act of 1989, or Firrea, requires a lower burden of proof than criminal charges and empowers prosecutors to demand unusually large penalties: up to $1.1 million per violation.

For the Justice Department, which measures the success of its crisis cases largely on the size of cash penalties, S.&P. is among the few items of unfinished business. Prosecutors are simultaneously negotiating a settlement with Morgan Stanley, which is suspected of selling troubled mortgage securities to investors in the run-up to the crisis.

The negotiations have not produced a final deal in either case. Stuart Delery, the Justice Department official overseeing the talks, declined to comment, as did a spokeswoman for S.&P.

A settlement for S.&P. would come down to more than just dollars and cents. The Justice Department wants to adopt a detailed statement of facts outlining the company’s wrongdoing, the people briefed on the matter said, a demand that caused talks to break down two years ago.

From the start, S.&P. was girding for a fight.

The ratings agency, which initially called the Justice Department’s lawsuit “meritless” and vowed to fight it “vigorously,” hired four law firms for the case, assembling a legal team that included Floyd Abrams, the noted First Amendment lawyer.

Mr. Abrams sought to turn the tables on the government. During an appearance on CNBC just weeks after the Justice Department filed the case, Mr. Abrams linked the federal investigation to S.&P.’s decision in 2011 to cut the United States credit rating below the top grade of triple A.

In a later court filing, S.&P. argued that the Justice Department “commenced this action in retaliation” for the downgrade, a notion that the government denies. The rating agency even claimed that Timothy F. Geithner, the Treasury secretary at the time of the downgrade, called a McGraw Hill executive to warn that S.&P.’s conduct would be “looked at very carefully.”

At the time, a spokeswoman for Mr. Geithner said that “the allegation that former Secretary Geithner threatened or took any action to prompt retaliatory government action against S.&P. is false.”

But S.&P. subpoenaed Mr. Geithner for documents anyway. And the judge overseeing the case supported the ratings agency’s request.

Like most cases against big corporations, the Justice Department suit against S.&P. features a collection of errant emails. They provide a glimpse inside the company on the eve of the mortgage crisis, hinting that some employees knew of a looming disaster even as the ratings agency provided its stamp of approval to exotic mortgage investments.

In one March 2007 email, an S.&P. analyst parodied the Talking Heads song “Burning Down the House,” adapting the lyrics to fit the subprime mortgage bubble: “Subprime is boi-ling o-ver. Bringing down the house.”

In the suit, the Justice Department argued that S.&P.’s relationships with the banks that designed the mortgage deals — the banks paid S.&P. to rate the deals — “improperly influenced” the ratings criteria. It also accused S.&P. of falsely claiming that its ratings “were objective, independent, uninfluenced by any conflicts of interest.”

S.&P. rebutted by saying that its claims of objectivity were mere “puffery,” common to marketing, and did not constitute fraud.