Standard & Poor's will be suspended for a year from rating bonds in one of its most lucrative businesses in a $60 million settlement with the U.S. Securities and Exchange Commission, according to a person with knowledge of the matter.
The deal, which the person said may be announced as soon as tomorrow, is the agency's toughest action yet in an industry blamed for fueling the 2008 financial crisis by assigning inflated grades to risky mortgage debt. Instead of securities created during that period, though, the SEC's investigation has looked at whether S&P bent its criteria to win business on commercial-mortgage bonds issued in 2011.
The suspension will ban S&P from rating debt in the biggest portion of that market, those that bundle multiple loans tied to anything from shopping malls to skyscrapers, into securities that are sold to bond investors, according to the person, who asked not to be identified because the discussions are private.
In addition to the SEC fine, the unit of McGraw Hill Financial Inc. is also facing a penalty to settle probes of the same ratings by Attorneys General in New York and Massachusetts, said the person and a second with knowledge of the talks.
Catherine Mathis, a spokeswoman for McGraw Hill, declined to comment as did Judy Burns, a SEC spokeswoman, Matt Mittenthal, a New York Attorney General spokesman, and Brad Puffer, a Massachusetts Attorney General spokesman.
The CMBS probe is separate from a lawsuit by the Justice Department tied to subprime home loans that S&P rated before the credit crisis. S&P is expected to settle that matter as soon as this quarter for about $1 billion in penalties, people familiar with the matter said this month.
The SEC sent S&P a Wells notice in July, saying that investigators were pursuing an enforcement action tied to six commercial mortgage-backed securities, or CMBS, ratings from 2011, according to a regulatory filing. The alleged violations relate to the CMBS rankings and "public disclosure made by S&P regarding those ratings thereafter," McGraw Hill said.