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Tuesday, August 20, 2019

SEC settles charges against Mizuho

By Michael P. Tremoglie | Jul 19, 2012

WASHINGTON (Legal Newsline) - The Securities and Exchange Commission on Wednesday settled charges against a U.S. subsidiary of Japan-based Mizuho Financial Group and three former employees.

The defendants were charged with "misleading investors in a collateralized debt obligation by using 'dummy assets' to inflate the deal's credit ratings." The firm's collateral and portfolio manager were also charged.

According to the SEC, Mizuho Securities USA Inc. made approximately $10 million in structuring and marketing fees in the deal. Mizuho agreed to pay $127.5 million to settle the SEC's charges, and the others charged also agreed to settle the SEC's actions against them.

The SEC alleges that Mizuho structured and marketed a CDO backed by subprime bonds at a time when the housing market was showing signs of severe distress. The deal was contingent upon Mizuho obtaining credit ratings it used to market the notes to investors, the SEC said.

When its employees realized could not meet one rating agency's newly announced criteria intended to protect CDO investors from the uncertainty of ratings downgrades, they submitted to the rating firm a portfolio containing millions of dollars in dummy assets that inaccurately reflected the collateral held by Delphinus, the SEC said.

"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," said Robert Khuzami, Director of the SEC's Division of Enforcement.

"This is a constant theme throughout the many SEC enforcement actions arising out of the financial crisis, and is one that everyone involved in securities transactions and our financial markets would be well-advised to respect."

Kenneth Lench, Chief of theSEC's Enforcement Division's Structured and New Products Unit, added, "Mizuho and its employees undermined the integrity of the rating process by furnishing inaccurate information about the Delphinus portfolio. Investors expect and are entitled to receive legitimate ratings in order to help them assess their investments."

According to the SEC, the three former Mizuho employees responsible were: Alexander Rekeda, who headed the group that structured the $1.6 billion CDO; Xavier Capdepon who modeled the transaction for the rating agencies; and Gwen Snorteland, who was the transaction manager. Delaware Asset Advisers served as the collateral manager and the DAA portfolio manager was Wei (Alex) Wei.

Everyone charged agreed to settlements without admitting or denying guilt. Mizuho consented to the entry of a final judgment requiring payment of $10 million in disgorgement, $2.5 million in prejudgment interest and a $115 million penalty.

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