The Securities and Exchange Commission today announced charges against six nationally recognized statistical rating organizations, or NRSROs, for significant failures by the firms and their personnel to maintain and preserve electronic communications. The firms admitted the facts set forth in their respective SEC orders; acknowledged that their conduct violated recordkeeping provisions of the federal securities laws; agreed to pay combined civil penalties of more than $49 million, as detailed below; and have begun implementing improvements to their compliance policies and procedures to address these violations.
- Moody’s Investors Service, Inc. agreed to pay a $20 million civil penalty;
- S&P Global Ratings agreed to pay a $20 million civil penalty;
- Fitch Ratings, Inc. agreed to pay an $8 million civil penalty;
- HR Ratings de México, S.A. de C.V. agreed to pay a $250,000 civil penalty;
- A.M. Best Rating Services, Inc. agreed to pay a $1 million civil penalty; and
- Demotech, Inc. agreed to pay a $100,000 civil penalty.
Each of the credit rating agencies, with the exception of A.M. Best and Demotech, is also required to retain a compliance consultant. A.M. Best and Demotech engaged in significant efforts to comply with the recordkeeping requirements relatively early as registered credit rating agencies and otherwise cooperated with the SEC’s investigations, and, as a result, they will not be required to retain a compliance consultant under the terms of their settlements.
“We have seen repeatedly that failures to maintain and preserve required records can hinder the staff’s ability to ensure that firms are complying with their obligations and the Commission’s ability to hold accountable those that fall short of those obligations, often at the expense of investors,” said Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement. “In today’s actions, the Commission once again makes clear that there are tangible benefits to firms that make significant efforts to comply and otherwise cooperate with the staff’s investigations.”
Each of the six firms was charged with violating Section 17(a)(1) of the Securities Exchange Act of 1934 and Rule 17g-2(b)(7) thereunder. In addition to significant financial penalties, each credit rating agency was ordered to cease and desist from future violations of these provisions and was censured. The four firms ordered to retain compliance consultants have agreed to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on their personnel’s personal devices and their respective frameworks for addressing non-compliance by their personnel with those policies and procedures.
The SEC’s investigations into Moody’s Investors Service, Inc., S&P Global Ratings, A.M. Best Rating Services, Inc., HR Ratings de México, S.A. de C.V., and Demotech, Inc. were conducted by Wesley W. Wintermyer and Michael S. DiBattista and were supervised by Judith Weinstock and Sheldon L. Pollock, all of the New York Regional Office. The SEC’s investigation into Fitch Ratings, Inc. was conducted by Joseph P. Ceglio and Mr. Wintermyer and was supervised by Ms. Weinstock, Joshua I. Brodsky, Osman E. Nawaz, and Mr. Pollock, all of the New York Regional Office. SEC staff from the Office of Credit Ratings assisted with the investigation.
