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Valuation Inquiries Rile Japan
 

Valuation Inquiries Rile Japan

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Following an investigation into overvalued mortgage securities sold back in 2007, Japanese brokerage Mizuho Securities Co. says its U.S. subsidiary is paying $127.5 million in a settlement with the ...

Following an investigation into overvalued mortgage securities sold back in 2007, Japanese brokerage Mizuho Securities Co. says its U.S. subsidiary is paying $127.5 million in a settlement with the U.S. Securities and Exchange Commission.

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    Valuation Inquiries Rile Japan Valuation Inquiries Rile Japan Document Transcript

    • Following an investigation into overvalued mortgage securities sold back in 2007, Japanesebrokerage Mizuho Securities Co. says its U.S. subsidiary is paying $127.5 million in a settlementwith the U.S. Securities and Exchange Commission.Although the company is not admitting any wrongdoing under the terms of the settlement, theSEC claims that three former employees of the U.S. subsidiary used fictitious, or "dummy”assets to inflate the value of the collateralized debt obligation, or CDO. This resulted in the firmreceiving a higher credit rating than it actually deserved, as well as misleading new investors ofthe product because of their assuring rating.Once the inaccurate portfolio was rated, Mizuho used those deceptive ratings to sell the CDO,which then ended up defaulting the following year in ’08. Despite these allegations against thefirm, Mizuho claims they are not under investigation by the SEC for any other transaction.In the realm of operational due diligence, taking a thorough look into the company’s assetportfolio, rather than blindly deciding to invest based on ratings, could possibly save an investorfrom being caught in fraudulent cases similar to that of Mizuho. In addition, checking into theaccuracy and completeness of their books and records system could have potentially revealedinformation that may have raised various warning signs suggesting instability, and evenfraudulent behavior by Mizuho.Although the company’s CDO ratings allegedly showed they had great ratings in regards tohaving low debt and credit risk that does not mean an investor should skip out on doing theirdue diligence. Regardless of a company’s seemingly good reputation and ratings in the media,before making an investment, an investor should feel compelled to investigate any firm ofinterest on a more detailed level, as a helpful precautionary tool.