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SEC mulls charges against McGraw Hill in CDO case

By Reuters
Monday, September 26, 2011 8:25 EDT
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(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
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