SEC may recommend legal action against S&P

[September 26, 2011]  NEW YORK (AP) -- The staff of the Securities and Exchange Commission is considering recommending civil legal action against the Standard & Poor's debt ratings agency over its rating of a 2007 collateralized debt offering.

Collateralized debt obligations, also known as CDOs, are securities tied to multiple underlying mortgage loans. The CDO generally gains value if borrowers repay. But if borrowers default, CDO investors lose money. Soured CDO's have been blamed for making the 2008 financial crisis worse.

McGraw-Hill Cos., which owns S&P, said Monday that it received a Wells Notice from the SEC's staff on Thursday.

In issuing Wells notices, the SEC enforcement staff gives companies the chance to make the case why charges are unwarranted. That means a formal decision by SEC commissioners to file charges may not occur.

S&P says it has been cooperating with the agency in the investigation.

[Associated Press]

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