In A First, SEC Warns Rating Agency It May Bring Financial Crisis Lawsuit

Though they’ve been faulted for their central role in the financial crisis, the major credit-ratings agencies have thus far weathered the fallout of the crisis with no sanctions [1] from federal regulators and little more than a bruised reputation.

But that could change soon.

In a formal warning known as a Wells notice, the Securities and Exchange Commission informed credit-ratings firm Standard & Poor’s that it’s considering civil charges [2] tied to the firm’s ratings of a 2007 mortgage-backed securities deal. It’s the first such warning to be given to a credit-ratings agency over matters directly related to the financial crisis.

The deal, known as Delphinus, was one of more than two-dozen collateralized debt obligations [3] linked to the hedge fund Magnetar, whose role in creating and betting against risky CDOs was detailed in a ProPublica investigation [4] last year. Completed in the summer of 2007, Delphinus was one of the last deals done by Magnetar and was underwritten by the Japanese bank Mizuho.

Details on S&P’s potential violations are still unclear. But last year’s Senate investigation of the financial crisis may contain some hints.

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