SEC could file civil charges against ratings agencies

Marketplace Staff Jun 17, 2011
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SEC could file civil charges against ratings agencies

Marketplace Staff Jun 17, 2011
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STEVE CHIOTAKIS: Some of the big ratings agencies, such as Standard & Poor’s, could be slapped with civil fraud charges and/or fines. That’s if securities regulators determine those firms were negligent in how they rated pools of mortgages and other loans. Bond securities that eventually helped lead to the financial crisis.

Jean Eaglesham is a reporter with the Wall Street Journal. Good morning Jean.

JEAN EAGLESHAM: Good morning.

CHIOTAKIS: So the ratings agencies have already been criticized by lawmakers for their role in the crisis. Why is the SEC getting involved now?

EAGLESHAM: Well, the SEC has been looking at the agencies for quite a while in relation to all these mortgage bond deals which the agencies gave triple-A ratings to. And then downgraded that when the housing market collapsed. What the SEC is looking at is did these firms actually do enough to make sure they had up to date information on the mortgages that they were rating. Did they take enough account of the warnings that were out there about the problems of sub prime mortgages.

CHIOTAKIS: Are there allegations of outright fraud or could this just be some sloppy research? What is it?

EAGLESHAM: It’s going to be a difficult case for the SEC to make, and the area of potential fraud that the SEC is looking at is called misrepresentation to investors. This is really whether the credit rating firms did enough to make sure that the information they were basing these ratings on was correct.

CHIOTAKIS: And what about the broader implications of all of this?

EAGLESHAM: This is all part of a broader, very long running investigation by the SEC into these mortgage bond deals. And it coves a number of the major Wall Street banks, a number of other financial firms and now the rating agencies. So we’re expecting to see rolling out over this year a series of settlements with the SEC. And it’ll be a landmark moment in the enforcement action after the financial crisis.

CHIOTAKIS: Jean Eaglesham, reporter with the Wall Street Journal. Jean thank you.

EAGLESHAM: Pleasure.

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