The parent of Standard & Poor's, which is defending against a $5 billion lawsuit by the federal government over its credit ratings, said on Wednesday it may soon also face U.S. Securities and Exchange Commission charges over another set of ratings.
In a regulatory filing, McGraw-Hill Financial Inc. said it received a "Wells notice" on July 22 indicating the SEC is weighing filing civil charges for alleged securities law violations over S&P's ratings of six commercial mortgage-backed securities transactions issued in 2011.
A Wells notice indicates the agency believes civil charges may be warranted, and gives a recipient a last chance to mount a defense.
S&P said it has been cooperating with the agency, and will continue to do so.
Catherine Mathis, an S&P spokeswoman, said it has been reported the SEC was examining its decision in 2011 to "pull" ratings of a CMBS transaction.
She added that the $5 billion lawsuit, brought last year by the U.S. Department of Justice, does not include CMBS securities.
S&P suffered a huge blow to its commercial mortgage-backed securities business in 2011, after a major error on a $1.5 billion deal caused its market share to shrink.
In July of that year, the rater discovered a mistake in its methodology, forcing it to withdraw ratings from a significant CMBS bond offer by Goldman Sachs Group Inc and Citigroup Inc.
In November 2012, SEC examiners homed in on one of the three largest U.S. credit rating agencies, saying the firm changed a key financial ratio for asset-backed securities without telling the public, and failed to consistently apply its rating methodology.
The rating agency, which was not identified, "may have been influenced by market share and business considerations in its application of the methodology used to rate asset-backed securities," the SEC wrote in a report summarizing its recent examinations of the agencies.
S&P was accused in the Justice Department lawsuit of helping fuel the financial crisis, and causing losses for federally insured banks and credit unions, by inflating ratings to boost fees from issuers, and being slow to downgrade souring mortgage debt.
The rating agency also faces related lawsuits by many U.S. states. Its main U.S. rivals, Moody's Investors Service and Fitch Ratings, do not face similar lawsuits.
If the SEC decides to charge S&P, it will mark the first time the agency has ever sued a major credit-rating firm.
In an April interview with Reuters, SEC Enforcement Director Andrew Ceresney said his agency was pursuing new actions against rating agencies over shoddy disclosures and other violations of its rules.
© 2022 Thomson/Reuters. All rights reserved.