Standard & Poor's agreed Wednesday to pay the U.S. government and two states more than $77 million to settle charges tied to its ratings of mortgage-backed securities.
In its first enforcement action against a major credit-rating company, the
"These settlements involve findings of intentional fraud in 2011 and 2012, well after the financial crisis," said Andrew Ceresney, director of the SEC's enforcement division, on a call with reporters. "The financial crisis may be behind us, but these cases are an important reminder that the race-to-the-bottom behavior exists even though the financial crisis has ended."
S&P said in a statement that it did not admit or deny any of the charges.
It's likely to be the first in a line of settlements between S&P and government agencies. In 2013, the
As part of its agreement with the SEC, Standard & Poor's Ratings Services, a division of McGraw Hill Financial, will take a "timeout" from rating certain types of mortgage-backed securities for a year.
"This is the first time a major credit rating agency has been subject to a timeout," Ceresney said. "It's unprecedented."
Janet Tavakoli, president of Tavakoli Structured Finance, called the SEC's actions "cosmetic." The longtime critic of rating companies compared the settlement to forcing a drunk driver to pay for car repairs after a crash. What's needed, she said, is an overhaul of how the companies analyze risk.
"It's just the appearance of doing something," she said. "They're not really solving the problem."
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 firms 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.