Credit Rating Agency Settles SEC Charges for Conflict of Interest Violations

A credit rating agency and its CEO settled SEC charges for issuing a credit rating for a client in which the rating agency's CEO participated in the rating determination and assisted in marketing activities with respect to that client.

In the Order, the SEC found that the client contributed more than 10 percent of the rating agency's net revenues during the prior fiscal year, and that the rating agency was unduly influenced by business considerations. The SEC also found that the agency failed to establish, maintain and enforce policies and procedures to manage conflict of interest provisions.

The SEC determined that the agency and its CEO violated various provisions of Exchange Act Sections 15E ("Registration of nationally recognized statistical rating organizations"), specifically, 15E(f)(2) ("Ban on representation as NRSRO of unregistered credit rating agencies") and 15E(h)(1) ("Management of conflicts of interest - Organization policies and procedures,"). Additionally, the SEC found that the agency and its CEO violated Exchange Act Rules 17g-5(c)(8)(i)-(ii) and Rule 17g-5(c)(1) ("Prohibited conflicts").

To settle the charges with the SEC, the credit rating agency agreed to (i) a cease-and-desist, (ii) a censure and (iii) pay a civil monetary penalty of $1,700,000, disgorgement of $129,000 and prejudgment interest of $17,592. The CEO agreed to (i) a cease-and-desist and (ii) pay a civil monetary penalty of $300,000.