In its first enforcement action against a major rating agency, the Securities and Exchange Commission (SEC) accused S&P of fraudulent misconduct, saying S&P loosened standards to drum up business in recent years. The agreement requires S&P to pay more than $58 million to the SEC, $12 million to New York and $7 million to Massachusetts.
S&P said in a statement that it did not admit or deny any of the charges. It’s likely the first in a line of settlements between S&P and government agencies. In 2013, the Justice Department and attorneys general from other states filed civil lawsuits against the company for misrepresenting risks in the years leading up to the financial crisis.
As part of its agreement with the SEC, Standard & Poor’s Ratings Services, a division of McGraw Hill Financial, will take a one-year “time out” from rating commercial mortgage-backed securities.
While the settlement ends the regulator’s case against S&P as a company, the SEC is now pursuing civil charges against one individual — Barbara Duka, S&P’s former CMBS chief. The SEC is alleging that Duka led a “scheme” to water down S&P’s rating methodology to win business without disclosing the change to investors. It also contends that Duka, who left S&P in March 2012, obscured the change from senior management.