Ratings agency Standard & Poor’s is facing a year-long ban from the commercial mortgage backed securities market because of misleading ratings it issued in 2011.
S&P was blamed for its role in fueling the subprime mortgage bubble because of misleading ratings. After the bubble burst the agency promised not to inflate the ratings on the products they were paid to evaluate.
However, S&P failed to meet its promise in 2011 after lying to investors about their profits and market share.
S&P, owned by publishing house McGraw Hill, will pay nearly $80 million in settlement fees, federal and state authorities announced on Wednesday.
Around $58 million will go to the S.E.C., $12 million to Eric Schneiderman, New York’s attorney general, and $7 million to Massachusetts attorney general, Martha Coakley.
Andrew J. Ceresney, the S.E.C.’s enforcement director, said in a statement, referring to commercial mortgage-backed securities.
“Investors rely on credit rating agencies like Standard & Poor’s to play it straight when rating complex securities like C.M.B.S. But Standard & Poor’s elevated its own financial interests above investors by loosening its rating criteria to obtain business and then obscuring these changes from investors.”
New York Attorney General Eric Schneiderman said in a press release:
“In the wake of the housing crisis and the collapse of the global economy, credit agencies like S&P promised not to contribute to another bubble by inflating the ratings on products they were paid to evaluate. Unfortunately, S&P broke that promise in 2011, lying to investors about their profits and market share.”
S&P said it was “pleased to have concluded these matters.” Adding that it “takes compliance with regulatory obligations very seriously and continues to make investments in people and technology to strengthen its controls and risk management throughout the organization.”
