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Ex-S&P Exec Goes on Trial Before SEC for Inflating Mortgage Bond Ratings
[Photo: by Funky Tee / Flickr]
An SEC administrative trial began on Monday involving Barbara Duka, former head of Standard & Poor's executive commercial mortgage-backed securities group. The charges: she engaged in a fraud that inflated ratings of commercial mortgage-backed securities by failing to disclose to investors a change she made in 2011 in how her team calculated ratings.
SEC lawyer Stephen McKenna said she instituted that change to more issuer-friendly criteria to generate more business. According to McKenna, investors were unaware of the change and continued to believe S&P's ratings remained conservative.
Guy Petrillo, Duka's lawyer, countered that while some mistakes within S&P might have occurred, Duka never had any intention of defrauding investors. Her group generated "fair and accurate" ratings for the mortgage bonds, he said.
The SEC administrative case against Duka was filed in 2015, about the same time that the SEC and 2 state attorneys general announced a $77 million settlement with S&P, then a unit of McGraw Hill Financial - now part of S&P Global. The case came after Goldman Sachs and Citigroup were forced in 2011 to pull a $1.5 billion commercial MBS offering after S&P informed them of an internal review of its ratings.
The SEC is seeking financial penalties as well as a bar on Duka associating with a ratings organization.
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