Bloomberg News

S&P in Talks With Regulators Over Structured-Finance Violations

July 26, 2012

Standard & Poor’s, the world’s largest credit-rating company, said it’s in discussions with U.S. regulators over potential violations related to structured- finance ratings.

The Department of Justice and the U.S. Securities and Exchange Commission are investigating possible civil violations related to S&P’s ratings of structured products, Harold “Terry” McGraw III, the chief executive officer of New York- based McGraw-Hill Cos., S&P’s owner, said today on a conference call to discuss earnings.

“Of course we have been in discussions with representatives of both the DOJ and the SEC, and presenting our position on those issues,” McGraw said.

S&P and other credit-rating companies were blamed for helping inflate the housing bubble by both the Financial Crisis Inquiry Commission and a Senate report last year. Investors lost billions on top-rated bonds after the companies lowered their standards in an effort to win more business from Wall Street banks, according to the panels.

S&P received a so-called Wells notice last year from the SEC indicating it could face claims over the top grade it gave in 2007 to a $1.6 billion collateralized debt obligation called Delphinus CDO 2007-1 that was downgraded six months later. Mizuho Financial Group Inc. (8411) last week agreed to pay $128 million to settle U.S. regulatory claims that it used “dummy assets” to inflate the credit ratings of the Delphinus CDO.

To contact the reporters on this story: Zeke Faux in New York at zfaux@bloomberg.net

To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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