February 28, 2024

S.E.C. Weighs Action Against Standard & Poor’s

Collateralized debt obligations, also known as C.D.O.’s, are securities tied to multiple underlying mortgage loans. The securities generally gain value if borrowers repay. But if borrowers default, investors lose money. Soured C.D.O.’s have been blamed for making the 2008 financial crisis worse. Ratings agencies have been accused of being lax in rating the investment.

The S.E.C. staff said it may recommend that the commission seek civil money penalties, disgorgement of fees or other actions.

S. P. has been under fire for its recent downgrade of United States long-term debt, as well as several bad calls it made leading to the financial crisis and economic meltdown that began in 2008. The unit’s president stepped down last month.

McGraw-Hill Companies, which owns S. P., said Monday that it received a so-called Wells notice from the S.E.C. on Thursday. A Wells notice is a warning to a company that the commission is considering enforcement action.

S. P. said it has been cooperating with the commission and plans to continue cooperating on the matter.

The news comes two weeks after McGraw-Hill announced that it plans to split up into two public companies, with one focused on education and the other centered on markets, featuring the Standard Poor’s unit. The decision had been expected, as investors have pushed the New York company to boost the company’s stock price, which has dropped by more than 40 percent since 2006.

McGraw-Hill Education will be the new company focused on education services and digital learning, while McGraw-Hill Markets will retain Standard Poor’s and J. D. Power and Associates, a market research company. It also includes S. P. Capital IQ, a provider of data, research, benchmarks and analytics, and Platts, a provider of information and indices in energy, petrochemicals and metals.

McGraw-Hill was founded by James H. McGraw in 1888 when he purchased the company’s first publication, The American Journal of Railway Appliances. Since then, the company has provided technical and trade publications, as well as information and analysis on global markets.

Article source: http://feeds.nytimes.com/click.phdo?i=be054729a650252d87a9fbb26e4d2346

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