S&P’s parent company, McGraw-Hill Cos, told investors it had received a notice a Wells Notice from the SEC stating the regulatory agency may institute a civil injunctive action against S&P that included civil monetary penalties and disgorgement of fees.
As reported by Carrie Bay at DSNews, a Wells Notice from the SEC signals the recipient is the subject of a formal investigation.
This case involves S&P’s AAA rating for a CDO known as Delphinius. S&P issued a AAA rating in the Summer of 2007. By the end of 2008 it had downgraded the CDO to junk status. Moody’s also provided a AAA rating and subsequently downgraded the CDO to junk.
A Senate subcommittee found evidence that analysts at both rating agencies were aware of the increasing risk of mortgages due to lax lending standards, poor quality loans, and unsustainable housing prices.
It is safe to assume that both agencies were pressured by Wall Street and they were paid big fees to issue the inflated ratings.
Meanwhile, investors have lost billions of dollars. The impact has been devastating.
The executives who made the decisions to package toxic assets and pay rating agencies to issue inflated ratings belong in jail. The executives at the rating agencies who succumbed to the pressure and took the money belong in adjoining cells.
Based on history, the companies will be paid fines and they will promise to clean-up their acts. Their executives will be free to develop the next scam that drives company earnings and stock prices.
Investors don’t stand a chance, until Wall Street executives are accountable for their decisions.
Fines are cost of doing business for these companies. At best they are an inadequate deterrent.