SEC Prosecutes Rating Agency Managing Director
The SEC has commenced enforcement proceedings against the managing director of a rating agency that it alleges relaxed CMBS ratings in contravention of internal policies and without sufficient disclosure. The SEC claims the respondent unilaterally altered credit enhancement calculations in order to attract more ratings business and sought to mislead the investing public about the changes with opaque disclosure. In addition to charging direct and aiding/abetting violation of the rules governing rating agencies, the SEC charges that the respondent committed securities fraud. The SEC argues that the respondent made the changes because her firm’s rating criteria threatened “the profitability of the CMBS Group she led and her position within the firm.”
OUR TAKE: The SEC is prosecuting an individual business leader even though it does not allege any specific benefit that she received. Also, the SEC alleges securities fraud even though the respondent did not buy or sell any securities. It is also unclear how a business unit leader becomes liable for aiding and abetting in the absence of these elements. This case is another example the SEC’s policy to prosecute individual business leaders whose organizations have engaged in alleged wrongdoing.