Mizuho Financial Group Inc., the U.S. brokerage unit of Japan’s third-biggest bank has agreed to pay $127.5 million for settling U.S. regulatory charges over misleading investors about $1.6 billion collateralized debt obligation using false credit ratings. SEC had alleged Mizuho of using “dummy assets” to inflate the credit ratings of its ‘Delphinus’ CDO by providing inaccurate information to Standard & Poor. After obtaining its ratings, Mizuho used the ratings to sell the Delphinus CDO 2007-1, which defaulted in 2008. An extra 4.8 million would be paid by Delaware Asset Advisers, which managed the Delphinus collateral to settle related claims.
‘Delphinus’ was highlighted in a report by a Senate investigative panel last year, and SEC’s settlement would include $115 million civil penalty, $10 million in fees, and $2.5 million in interest. Mizuho neither admitted nor denied the SEC charges.
The firm said in a statement, “Mizuho cooperated fully with the SEC throughout this process. The firm agreed to the settlement to avoid protracted litigation and distraction and believes the settlement is the right outcome for its shareholders, clients and employees.”
SEC Enforcement Director Robert Khuzami said in a statement “This case demonstrates once again that bankers and market participants who embrace a ‘get-the-deal-done-at-all-costs’ strategy will be identified, charged, and punished … This is a constant theme throughout the many SEC enforcement actions arising out of the financial crisis…”
The SEC had also charged Alexander Rekeda, who headed the group, Xavier Capdepon, who did the creative transaction for the rating companies, and Gwen Snorteland, the transaction manager who structured and closed the CDO, separately. However, the proceedings against these former employees of Mizuho would be dropped following the settlement. Both Alexander Rekeda and Xavier Capdepon are known to have agreed to pay $125,000 each along with agreeing to a one-year suspension from the industry.