More On Legal & Compliancefrom The Advisor's Professional Library
- Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
An issue over the rating of a collateralized debt obligation from 2007 prompted the SEC Thursday to send a so-called Wells Notice to McGraw-Hill, the parent company of Standard and Poor’s.
According to the notice, the SEC is considering recommending civil legal action against the Standard and Poor's debt ratings agency over Delphinus CDO 2007-1.
“The McGraw-Hill Companies, Inc. today filed a Form 8-K with the U.S. Securities and Exchange Commission acknowledging that on September 22, 2011, it received a ‘Wells [n]otice’ from the commission staff stating that the staff is considering recommending that the commission institute a civil injunctive action against Standard & Poor's Ratings Services, alleging violations of federal securities laws with respect to S&P's ratings for a particular 2007 offering of collateralized debt obligations, known as ‘Delphinus CDO 2007-1,’” The company said in a statement. “In connection with the contemplated action, the staff may recommend that the commission seek civil money penalties, disgorgement of fees and other appropriate equitable relief.”
A Wells Notice is a letter sent by the SEC to individuals or firms, informing them that it is planning to bring an enforcement action against them. It indicates that the SEC staff has determined it may bring a civil action against a person or firm, and provides the person or firm with the opportunity to provide information as to why the enforcement action should not be brought.
“The Wells Notice is neither a formal allegation nor a finding of wrongdoing,” the company added. “It allows S&P the opportunity to provide its perspective and to address the issues raised by the Staff before any decision is made by the Commission on whether to authorize the commencement of an enforcement proceeding. S&P has been cooperating with the Commission in this matter and intends to continue to do so.”
In August 2008, rival ratings agency Fitch downgraded 13 classes of notes from Delphinus CDO 2007-1, citing “the significant collateral deterioration within the portfolio, specifically subprime RMBS and SF CDOs with underlying exposure to subprime RMBS.”