Did SEC spank S&P hard enough?
$77 million settlement for exaggerating mortgage bond ratings in 2011
The Securities and Exchange Commission this morning settled "fraudulent misconduct" allegations against Standard & Poor's Ratings Service for its overly-optimistic ratings of bonds backed by questionable commecial real estate mortgages in 2011. S&P agreed to pay the SEC $58 million, plus $12 million to New York and $7 million to Massachusetts, which also filed complaints after investors in those states suffered losses from trusting S&P.
"Standard & Poor's elevated its own financial interests above investors' by loosening its rating criteria to obtain business," without warning investors, SEC Enforcement chief Andrew J. Ceresney said in this statement, which also links to the SEC complaints.
It's the first bust directed by the SEC against a major credit-rating agency; many investors and commentators had urged similar action against both S&P and rival Moody's for their failure to warn investors about millions of bad mortgages leading up to the 2008 home finance crisis.
As part of the settlement, S&P agreed to stop rating "conduit fusion collateralized mortgage-backed securities" for the next year.
The SEC blamed an ex-S&P manager, Barbara Duka, for decisions that led to exaggerated ratings; she is contesting the charges, Reuters says here. Another S&P emloyee, Mark Adelson, fought for tougher standards but was overruled by managers who feared losing business if they were too tough on bonds and bond issuers, Bloomberg says here.