S&P settles with SEC for $58 million over bond ratings fraud

First action against one of the big three ratings firms

Standard & Poor's Ratings Services will pay the Securities and Exchange Commission $58 million to settle federal charges that it lossened its ratings criteria while obscuring that change from investors.

“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.”

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. 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.

Under the settlement S&P is also barred from grading certain bond deals for one year.

The SEC's action was the first time federal regulators have disciplined one of the big three ratings firms since the financial crisis.

On another front, S&P is looking to settle claims from the Justice Department and more than a dozen states that the company committed fraud in the run-up to the 2008 financial crisis, and may pay more than $1.37 billion.

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