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SEC mulls action against S&P rating
Source: Agencies |
September 27, 2011, Tuesday
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Print Edition
THE staff of the United States Securities and Exchange Commission is considering recommending civil legal action against the Standard & Poor's debt ratings agency over its rating of a 2007 collateralized debt offering.
Collateralized debt obligations, also known as CDOs, are securities tied to multiple underlying mortgage loans. The CDO generally gains value if borrowers repay. But if borrowers default, CDO investors lose money. Soured CDOs have been blamed for making the 2008 financial crisis worse. Ratings agencies have been accused of being lax in rating CDOs.
The SEC staff said it may recommend that the commission seek civil money penalties, disgorgement of fees or other actions.
S&P has been under fire for its recent downgrade of US debt, as well as several bad calls it made leading up to the financial crisis and economic meltdown that began in 2008. The unit's president stepped down last month.
McGraw-Hill Cos, which owns S&P, said yesterday that it received a Wells Notice from the SEC's staff on Thursday.
In issuing Wells notices, the SEC enforcement staff gives companies the chance to make the case why charges are unwarranted. That means a formal decision by SEC commissioners to file charges may not occur.
S&P said it has been cooperating with the SEC and plans to continue cooperating on the matter.
The news comes two weeks after McGraw-Hill announced that it plans to split up into two public companies with one focused on education and the other centered on markets, featuring the Standard & Poor's unit.
Collateralized debt obligations, also known as CDOs, are securities tied to multiple underlying mortgage loans. The CDO generally gains value if borrowers repay. But if borrowers default, CDO investors lose money. Soured CDOs have been blamed for making the 2008 financial crisis worse. Ratings agencies have been accused of being lax in rating CDOs.
The SEC staff said it may recommend that the commission seek civil money penalties, disgorgement of fees or other actions.
S&P has been under fire for its recent downgrade of US debt, as well as several bad calls it made leading up to the financial crisis and economic meltdown that began in 2008. The unit's president stepped down last month.
McGraw-Hill Cos, which owns S&P, said yesterday that it received a Wells Notice from the SEC's staff on Thursday.
In issuing Wells notices, the SEC enforcement staff gives companies the chance to make the case why charges are unwarranted. That means a formal decision by SEC commissioners to file charges may not occur.
S&P said it has been cooperating with the SEC and plans to continue cooperating on the matter.
The news comes two weeks after McGraw-Hill announced that it plans to split up into two public companies with one focused on education and the other centered on markets, featuring the Standard & Poor's unit.
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