Mizuho Settles With|SEC for $127 Million

     MANHATTAN (CN) – Mizuho Financial Group will pay $127.5 million to settle complaints it used “dummy assets” to inflate credit ratings of $1.6 billion in subprime mortgage-backed securities as the housing and securities markets tottered, the SEC said.



     Mizuho Securities made $10 million in fees from the deal, the SEC said.
     The complaint states: “This action arises from the structuring, marketing and rating of a hybrid collateralized debt obligation (‘CDO”) called Delphinus CDO 2007-1 (‘Delphinus’). Delphinus was a mezzanine CDO backed by subprime bonds, which means that the collateral held by Delphinus was largely composed of subprime Residential Mortgage Backed Securities (‘RMBS’) that were rated slightly higher than junk bonds, and credit default swaps referencing subprime RMBS. Mizuho Securities USA, Inc. (‘Mizuho’) structured, marketed and obtained ratings for this $1.6 billion CDO in mid-2007, when the housing market and the securities referencing it were showing signs of severe distress.
     “The marketing materials for Delphinus – including the Offering Memorandum -represented that the notes issued by the CDO would obtain certain specific ratings from three credit rating agencies, including Standard & Poor’s (‘S&P’). Receipt of those ratings was a condition precedent to Delphinus’s closing and the sale of the CDO notes. Undisclosed to purchasers of Delphinus notes, however, certain of Mizuho’s employees provided S&P inaccurate and misleading information. Investors were misled because notes were issues with ratings obtained by the conduct of Mizuho employees.
     “Delphinus resulted in approximately $10 million in structuring and marketing fees. Delphinus closed on July 19, 2007; on September 27, 2007, Fitch placed five classes of Delphinus on Rating Watch Negative. On January 2, 2008, Delphinus suffered an event of default.”
     The SEC separately charged three former Mizuho employees, Alexander V. Rekeda, 38, of Hoboken, N.J.; Xavier Capdepon, 34, of New York City, and Gwen Snorteland, 37, of the Bronx, in two complaints; and Delaware Asset Managers, the collateral manager for the deal, and its portfolio manager, Wei (Alex) Wei. They also agreed to settle, the SEC said.

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