October 26, 2015

Credit rating agency DRBS Inc. agreed to pay almost $6 million to settle SEC charges of misrepresenting its surveillance methodology for ratings of certain complex financial instruments during a three-year period.  An SEC investigation found that the firm misrepresented that it would monitor on a monthly basis each of its outstanding ratings of U.S. residential mortgage-backed securities (RMBS) and re-securitized real estate mortgage investment conduits (Re-REMICs) by conducting a three-step quantitative analysis and subjecting each rating to review by a surveillance committee.  In fact, the review was not conducted on a monthly basis and when the committee convened it reviewed only a limited subset of ratings.  DRBS did not have adequate staffing and technological resources to conduct the surveillance promised by its surveillance methodology.  SEC

Tagged in: Accounting Fraud, Securities Fraud,