The SEC and the Attorneys General of New York and Massachusetts this week fined Standard & Poor’s almost $77 million, suspended S&P from conduit-fusion CMBS ratings work for a year and imposed other undertakings, for violations from 2010-2014.
The SEC announced three settled administrative proceedings against the firm. The first settled charges that during 2010-2011 S&P changed the way it analyzed debt-service coverage ratios in a way that lessened credit-enhancement requirements in conduit-fusion commercial mortgage-backed securities (CMBS) issues. The SEC also found S&P ignored red flags in connection with the ratings-method change. The SEC imposed a $35 million civil penalty, $7 million in disgorgement (including interest), and imposed a one-year suspension from any CF-CMBS ratings activities, along with other remedial undertakings. S&P admitted certain facts in this first settled-action. In the Matter of Standard & Poor’s Ratings Services, Rel. No. 34-74104 (Jan. 21, 2015).
In the second action, S&P agreed to a $15 million penalty for misrepresentations and omissions in a “Great Depression article” that described ratings criteria for CF-CMBS as able to withstand Great-Depression era stressors, but without disclosing underlying assumptions and analytical flaws. The article’s author had written a “smoking-gun” email to a colleague bemoaning the fate of his work as a “sales pitch” and fearing he would find himself “sitting in front of DOJ or the SEC….” In the Matter of Standard & Poor’s Ratings Services, Rel. No. 34-74102 (Jan. 21, 2015).
In the third, the SEC issued a cease-and-desist order for S&P’s failure to apply established methodology to RMBS surveillance from October 2012 through January 2014. In the Matter of Standard & Poor’s Ratings Services, Rel. No. 34-74103 (Jan. 21, 2015).
The SEC also issued an order instituting enforcement proceedings against S&P’s former CMBS head, Barbara Duka, alleging she lead the implementation of more issuer-friendly ratings criteria without ensuring adequate disclosure. In the Matter of Barbara Duka, Rel. No. 34-74105 (Jan. 21, 2015).
The SEC announcement is here.
In connection with the SEC’s actions, S&P reached settlements with the NY Attorney General for $12 million and the Massachusetts Attorney General for $7 million.
See A.G. Schneiderman Settles With Standard And Poor’s Over CMBS Credit Ratings and Standard and Poor’s to Pay $7 Million to Massachusetts for Making False Statement Regarding Its Ratings Methodology.