SEC Focuses on Role Raters Played in Financial Crisis
The Securities and Exchange Commission (SEC) is focusing in on the role that credit rating agencies played in developing the mortgage bond deals, or collateralized bond obligations (CDOs), that led up to the financial crisis, as reported in the Wall Street Journal. They are looking closely at the conduct of Standard & Poor’s (S&P) and Moody’s Investors Services to determine if civil fraud charges can be made. This marks a continued broadening of the probe into the sales and marketing of the mortgage bond deals by major Wall Street banks such as Goldman Sachs, which paid some $550 million to settle charges made by the SEC. Other firms in the sights of the SEC probe include Citigroup, Morgan Stanley, Bank of America and UBS.
The rating agencies were crucial in the creation of the mortgage bond deals, since they assigned the time honored triple-A rating to many of the CDOs leading up to the time when the housing market collapsed and the subprime market went bust.