(Reuters) – McGraw-Hill Cos Inc said U.S. regulators may charge its Standard & Poor’s ratings unit with violating federal securities laws with ratings on a repackaged mortgage bond in 2007.
The company said it received a Wells Notice from the U.S. Securities and Exchange Commission that commission staff may recommend a civil lawsuit against the unit for a rating on 2007 collateralized debt offering (CDO) known as “Delphinus CDO 2007-1.” The staff may recommend that the SEC seek monetary penalties, the company said in a statement today.
Regulators send Wells Notices to companies or people to give them a chance to argue why government should not file an enforcement action against them.
The company said it received the notice on September 22.
The SEC’s investigation comes as McGraw-Hill prepares to split into two publicly-traded companies, one holding Standard & Poor’s and market information services and another holding its textbook publishing company.
Institutional shareholders, led by Jana Partners, have pushed the company to completely separate the S&P ratings business from the information services.
S&P issued the CDO rating in question at the end of the credit boom that carried mortgage lending and house prices to unsustainable heights. S&P put triple-A credit ratings on many mortgage-related securities which later went into default when house prices collapsed.
S&P’s failures with structured finance ratings were recently cited by Washington politicians as reason to doubt the agency’s downgrade of U.S. government debt in August from triple-A.
(Reporting by David Henry in New York, Aditi Sharma in Bangalore; Editing by Sayantani Ghosh and Derek Caney)
Reuters.com brings you the latest news from around the world, covering breaking news in business, politics, technology, and more.
Raw Story is a progressive news site that focuses on stories often ignored in the mainstream media. While giving coverage to the big stories of the day, we also bring our readers' attention to policy, politics, legal and human rights stories that get ignored in an infotainment culture driven solely by pageviews.
Founded in 2004, Raw Story reaches 5 million unique readers per month and serves more than 19 million pageviews.