Standard & Poor’s has agreed to pay more than $58 million to settle charges brought by the U.S. Securities and Exchange Commission, which alleged the ratings company engaged in “fraudulent misconduct” in how it rated certain commercial mortgage-backed securities (CMBS).
The SEC’s action is the first-ever against a major ratings firm and requires S&P to take a one-year suspension from rating certain CMBS in addition to the monetary fine.
“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 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.”
Three orders were issued against S&P. One was related to the misrepresentation of rating methodology, while another related to a “false and misleading article” about the rating company’s new criteria initiated in 2012. The third cited internal controls failures in S&P’s oversight of residential mortgage-backed securities ratings.
S&P will pay another $19 million in addition to the SEC fine to settle parallel cases announced Wednesday by the New York and Massachusetts Attorney Generals’ offices.
Former S&P executive Barbara Duka, who oversaw S&P’s CMBS Group, was also charged by the SEC in a related case. She is planning to contest the charges in administrative court.