New York (HedgeCo.Net) – Standard & Poor’s has agreed to pay more than $58 million to settle SEC charges rising from a series of federal securities law violations by Standard & Poor’s Ratings Services involving fraudulent misconduct in its ratings of certain commercial mortgage-backed securities (CMBS).
S&P will also pay an additional $19 million to settle parallel cases announced by the New York Attorney General’s office.
“These CMBS-related enforcement actions against S&P demonstrate that ‘race to the bottom’ behavior by ratings firms will not be tolerated by the SEC and other regulators. When ratings standards are compromised in pursuit of market share, a firm’s disclosures cannot tell a different story,” said Michael J. Osnato, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit.
The SEC issued three orders instituting settled administrative proceedings against S&P. One order, in which S&P made certain admissions, addressed S&P’s practices in its conduit fusion CMBS ratings methodology.
“Investors rely on credit rating agencies like Standard & Poor’s to play it straight when rating complex securities like CMBS,” said Andrew J. Ceresney, Director of the SEC Enforcement Division. “But Standard & Poor’s elevated its own financial interests above investors by loosening its rating criteria to obtain business and then obscuring these changes from investors. These enforcement actions, our first-ever against a major ratings firm, reflect our commitment to aggressively policing the integrity and transparency of the credit ratings process.”
S&P’s public disclosures affirmatively misrepresented that it was using one approach when it actually used a different methodology in 2011 to rate six conduit fusion CMBS transactions and issue preliminary ratings on two more transactions. As part of this settlement, S&P agreed to take a one-year timeout from rating conduit fusion CMBS.
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