S&P settles with SECS, 2 states over misconduct charges
By MATTHEW CRAFT (AP)
NEW YORK (AP) — The credit ratings agency Standard & Poor's agreed to pay the U.S. government and two states $77 million to settle investigations into mortgage-backed securities.
In its first enforcement action against a major rating agency, the Securities and Exchange Commission accused S&P of fraudulent misconduct in its ratings of some mortgage-backed securities from 2011 to 2014.
It's likely the first of a number of settlements between the ratings agency and regulators. The Justice Department and attorney generals from other states filed civil lawsuits against S&P last year.
Under the terms of the settlement announced Wednesday, S&P will pay more than $58 million to the Securities and Exchange Commission, $12 million to New York and $7 million to Massachusetts.
Standard & Poor's Ratings Services, a division of McGraw Hill Financial, also agreed to take a "time out" from issuing rating on certain types of mortgage-backed securities for a year, according to a statement from the company. S&P did not admit or deny any of the charges.
"Investors rely on credit rating agencies like Standard & Poor's to play it straight when rating complex securities ..." said Andrew Ceresney, director of the SEC's 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."
Mortgage-backed bonds played a large role in setting off the financial crisis in 2008. During the housing boom, banks bundled risky mortgages into other securities and sold them to investors in slices. Credit rating agencies awarded many of them top ratings, classifying mortgage-bonds among the safest of investments.
But when the housing bubble popped, many of these mortgage securities turned out to be worthless.