1. 1/22/2015 Attorneys Weigh In On SEC's $77M Settlement With S&P ­ Law360
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Diego Arredondo, Roig Lawyers
“Once again, federal regulators settle
differences with a financial institution
without the matter being adjudged on its
merits in a proper tribunal. We have
made no law and developed no new clear
rules as to what a ratings agency may or
may not do in going forward. In this case,
what a ratings agency can or cannot do
does not appear to have been delineated,
only that what S&P did was wrong to the tune of $77 million.
As far as what actions exactly were inappropriate remains
unclear.”
Yariv Ben­Ari, Akerman LLP
“While this enforcement action and its
resulting settlement represents a
significant victory for the SEC, it may
ultimately have little impact on the
financial markets, given that it only
impacts a niche segment of the CMBS
market. Certain lenders may temporarily
shy away from executing in this niche
market, but ultimately there are other
rating agencies that can rate in lieu of
S&P gap in that niche market. It will,
however, invigorate the rating agencies'
obligations to tighten up rating criteria in the best interests of
the public given the public's reliance on the ratings, over
attracting more business and elevating the rating agencies
own financial interests over that of the public.”
Beth Boland, Foley & Lardner LLP
“While the nominal amount of the settlement is dwarfed by settlements with other
defendants in enforcement actions and litigation over CMBS and RMBS instruments, the
striking part is the injunctive relief agreed to by S&P: a one­year
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Attorneys Weigh In On SEC's $77M Settlement
With S&P
Law360, New York (January 21, 2015, 5:08 PM ET) ­­ The U.S. Securities and Exchange
Commission slapped Standard & Poor’s on Wednesday with a one­year suspension from
rating certain mortgage­backed securities as part of a $77 million settlement over alleged
fraudulent misconduct in past ratings. Here, attorneys tell Law360 why the settlement is
significant.

2. 1/22/2015 Attorneys Weigh In On SEC's $77M Settlement With S&P ­ Law360
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suspension for rating certain types of CMBS, plus admissions and
retractions of statements made by the agency about its ratings criteria
for the CMBS. S&P may or may not care about being temporarily
excluded from the conduit fusion CMBS space, but the SEC’s focus on
extracting injunctive relief which may affect both the business and
reputation of a credit rating agency is significant.”
Gregg Breitbart, Kaufman Dolowich & Voluck
“Conflicts of interest impact the
regulatory playing field. When you have a
rating agency that is paid by the issuers
of the securities it is supposed to rate on
an objective and independent basis, that
conflict reduces the rating agency's
margin for error. If a football referee was
paid by one team (in this analogy, the
issuers) against another team (the
investing public), any 'close call' in favor
of the 'home team,' even an honest one,
would draw screams of favoritism from
the visitors. If you're going to operate
from that conflict position, you'd better be right.”
Jason Canales, Moses & Singer LLP
“The SEC touts as 'unprecedented' its
settlement with S&P over the issuance of
certain alleged fraudulent ratings of its
mortgage­backed securities. While this is
the SEC’s first enforcement action against
one of the major credit­rating agencies,
and it exemplifies the agency’s continued
aggressive policing of the securities laws
post­financial crisis, it remains to be seen
whether a one­year timeout and over $77
million in fines will deter future
misconduct. Perhaps the more significant
pronouncement by the SEC in connection with the settlement
is that there may likely be more actions brought against
rating agencies in the future.”
Jacob S. Frenkel, former SEC enforcement attorney,
Shulman Rogers Gandal Pordy & Ecker PA
“Particularly interesting is the enforcement director's
comment highlighting the fundamental conflict that is ever­
present in the issuer­pay model of ratings as compared to the
user­pay model. The undertakings to which S&P agreed and
narrowly crafted suspension balanced the SEC's mission­
based deterrent message and responsibility to ensure that
one of the few players in the ratings market continues to
operate uninterrupted. The orders also reemphasize the
importance of effective internal controls across all market

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sectors and the need to ensure integrity and consistency in
corporate disclosures.”
Rick Gallagher, Ropes & Gray LLP
“This is a major enforcement action. It’s
going to force the major rating firms to
address a very difficult question. How do
they address the tension between
pursuing an objective rating process, on
the one hand, versus a desire to get
more business in the increasingly
competitive CMBS rating space? Although
we’re moving past the collapse of the
MBS markets, the SEC is staying focused
on internal incentives that, left
unchecked, can create serious systemic
conflicts and risks. There is little doubt
we’ll see more enforcement activity in this space in the
future.”
Toby Galloway, former SEC attorney, Kelly Hart &
Hallman LLP
“The impact of this enforcement action is
enormous. It is the most severe action
ever taken by the SEC against a credit
ratings agency. While the dollar amount
of the settlement is not huge in terms of
S&P’s business, the one­year timeout
from rating commercial mortgage­backed
securities is unprecedented. And the SEC
required S&P to admit certain facts, in
keeping with the commission’s revised
policy of requiring admissions in
settlements of certain matters, rather
than settling on a neither­admit­nor­deny basis. It will be
interesting to see what this may foreshadow for S&P’s
competitors. Is the SEC finished with these investigations, or
is it just beginning?”
Eugene Goldman, former SEC enforcement lawyer,
McDermott Will & Emery LLP
“These important actions focus on inaccuracies in how S&P
disclosed its ratings methodologies after the financial crisis.
The ultimate issue — whether there was fraud in portraying
its ratings as independently assessed and objective during the
run­up to the financial crisis — is in the hands of the Justice
Department.”
David Lavan, Dinsmore & Shohl LLP

4. 1/22/2015 Attorneys Weigh In On SEC's $77M Settlement With S&P ­ Law360
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“The Securities and Exchange Commission’s settlement earlier today
with Standard and Poor’s was significant for two reasons. First, it marks
the first time any of the credit ratings agencies has been brought to
heel by the SEC. Second, although the financial penalties were not
insignificant, the one­year suspension of S&P’s ability to rate certain
commercial mortgage bonds sent the market a signal that the SEC
wanted the settlement to be seen as driving significant change at the
credit ratings agency. Not mentioned in the SEC press release
announcing the settlement was whether S&P was currently issuing
ratings for new issues of U.S. conduit/fusion commercial mortgage
backed securities.”
Laura Pruitt, Alston & Bird LLP
“The SEC appears to be reinforcing a
fundamental tenet of securities law: An
important participant in the securities
offering process cannot represent publicly
to investors that it is doing one thing
while, in actuality, it is doing something
materially different behind the scenes.”
Norman H. Roos, Robinson & Cole LLP
“The 2008 financial crisis was preceded
by the so­called subprime mortgage
meltdown, which was in turn triggered by
early payment defaults occurring in late
2006 and early 2007. The parties
identified as having contributed to the
meltdown and ensuing financial crisis
included lenders, investors, regulators
and rating agencies. While lenders, investors and regulators
have been impacted dramatically by the litigation, legislation
and regulation that followed in the wake of the crisis, the
impact on rating agencies has been less dramatic. The
principal significance of the SEC enforcement action is that
this action represents a somewhat isolated instance of a
rating agency being held accountable for the events
surrounding the financial crisis.”
C. Evan Stewart, Cohen & Gresser
“For years, critics have pointed out that not only have the credit rating
agencies lost their reputations for independence, objectivity and even
competence, but that the industry itself is a cartel fostered and
officially sanctioned by the Securities and Exchange Commission. And
many of these same critics have assigned the lion’s share of the blame
for the 2008 financial crisis to the flawed work of the credit rating
agencies. Notwithstanding, things have pretty much continued on since
then like before. Whether this settlement is an attempt to rebut those
broad critiques is unclear. What does seem clear is that, given the size
of the penalty and the limited 'timeout' ordered, the settlement does
not address the larger problems heretofore identified and it is doubtful
that it will silence any of the critics.”

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­­Editing by Chris Yates.
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