Mizuho Securities USA will pay $127.5 million to settle SEC charges that its employees used “dummy assets” to inflate credit ratings and mislead investors in a collateralized debt obligation.
The collateral manager for the offering, Delaware Asset Advisers, agreed to pay $4.8 million without admitting or denying the findings by the SEC's Structured and New Products Unit.
In a statement, Mizuho said the activity was isolated to a few people who left in December 2007, and the company cooperated fully with the Securities and Exchange Commission. Mizuho was not charged with fraud or intentional misconduct, and the firm did not admit wrongdoing.
Delaware Asset Advisers is a unit of Delaware Investments.
The bulk of Mizuho's payment is a $115 million penalty. DAA will return to investors $2.2 million and pay a $2.2 million penalty, plus interest.
The case involved a $1.6 billion CDO called Delphinus that was backed by subprime bonds during a distressed housing market. Before its scheduled close on July 19, 2007, Standard & Poor's adjusted its criteria for rating a type of residential mortgage-backed securities featured in the Delphinus portfolio. According to the SEC complaint, Mizuho employees submitted alternative portfolios with dummy assets in place of the RMBS to S&P to get the desired ratings for the CDO.
Patrick P. Coyne, president of Delaware Investments, said in a statement that his firm settled with the SEC “to avoid any potential for disruption or distraction. We have tremendous respect for the SEC … and we have sought to be cooperative throughout this process.”