SEC Investigates Credit-Rating Firms for Contributing to Financial Collapse

The US regulator could file civil charges against some rating agencies for their role in rating mortgage-bond deals that fueled the financial crisis.

(June 17, 2011) — The Securities and Exchange Commission (SEC) is considering charges against credit-rating agencies for their role in developing mortgage-bond deals that contributed to financial collapse.

SEC officials are focusing their attention on whether ratings companies committed fraud, the Wall Street Journal reported, noting that they failed to do sufficient research to properly rate subprime mortgages. The SEC is reviewing the conduct of companies including McGraw Hill’s Standard and Poor’s and Moody’s Investors Service, owned by Moody’s Corp, on at least two mortgage-bond deals.

While banks and brokerage partners have been the focus of charges and regulatory reforms, ratings firms have been successful in largely dodging such levels of scrutiny until now. The recent inquiry into ratings firms broadens the SEC’s probe into the sales and marketing of mortgage-bond deals.

Last year, in the wake of the financial crisis, the SEC disclosed that it was working on heightening enforcement actions against major Wall Street firms. The August 2010 announcement by the regulator came on the heals of the SEC’s $550 million settlement with Goldman Sachs in a civil fraud case after the banking giant failed to disclose conflicts of interest in mortgage investments it sold as the housing market was waning. The bank did not admit to any wrongdoing.

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The SEC has being widely criticized for not enforcing greater oversight after the 2008 financial crisis. The regulator has asserted that high-profile cases similar to the Goldman suit are ongoing, handled by the agency’s enforcement division.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

(June 17, 2011) — The nation’s largest public pension fund — the California Public Employees’ Retirement System (CalPERS) — is fighting back against recent criticism over its email deletion policy.

The fund’s email deletion policy was disclosed recently in response to a Public Records Act request from the Los Angeles Times. The public fund defended its deletion policy in an email to aiCIO:

“The policy was not new. It was put in place on November 14, 2000. In April 2009 it was inadvertently disabled when we upgraded our email system and reactivated in July 2010. This is clearly spelled out in the communication the Times received in their PRA,” CalPERS spokesman Brad Pacheco stated.

The fund also asserted that CalPERS staff were trained on the policy. “Employees received communication about the policy in 2000 and again in 2010, had tips for determining which emails to delete on intranet, received reminders, and offers from Info Security Office to assist. Managers received values training that included this topic, and a handbook that covered the policy.”

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CalPERS indicated that it was not given the opportunity to respond to the accusation that it could be “destroying evidence of misdeeds.”

Peter Mixon of CalPERS’ General Counsel said: “The suggestion in the story that CalPERS has thwarted any federal or state law enforcement effort in connection with the administration of the agency’s email policies is wrong. On the contrary, CalPERS has been praised by both federal and state authorities for the assistance it has provided to them in their investigations. CalPERS remains committed to protecting the interests of its members and beneficiaries, and continues to support the investigatory efforts of federal and state authorities.”

Questions over the fund’s policy of deleting emails older than 60 days began last week, with accusations that it could be destroying important evidence of wrongdoing. The timing of CalPERS’ email deletion policy has been raising concerns, largely due to former officials at the fund being the focus of investigations by state and federal authorities. Critics of CalPERS’ email policy also assert that at government agencies, emails are considered public records.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742