The staff of the 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 U.S. 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. [MHP 43.20 0.27 (+0.63%) ], which owns S&P, said Monday 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 commission and plans to continue cooperating on the matter.
Source: CNBC / AP