Reply #17: In a First, SEC Warns Rating Agency It May Bring Financial Crisis Lawsuit

[Demeter]

http://www.truth-out.org/first-sec-warns-rating-agency-it-may-bring-financial-crisis-lawsuit/1317224268

Though they’ve been faulted for their central role in the financial crisis, the major credit-ratings agencies have thus far weathered the fallout of the crisis with no sanctions from federal regulators and little more than a bruised reputation.

But that could change soon.

In a formal warning known as a Wells notice, the Securities and Exchange Commission informed credit-ratings firm Standard & Poor’s that it’s considering civil charges tied to the firm’s ratings of a 2007 mortgage-backed securities deal. It’s the first such warning to be given to a credit-ratings agency over matters directly related to the financial crisis.

The deal, known as Delphinus, was one of more than two-dozen collateralized debt obligations linked to the hedge fund Magnetar, whose role in creating and betting against risky CDOs was detailed in a ProPublica investigation last year. Completed in the summer of 2007, Delphinus was one of the last deals done by Magnetar and was underwritten by the Japanese bank Mizuho.

Details on S&P’s potential violations are still unclear. But last year’s Senate investigation of the financial crisis may contain some hints...