SEC v. Mizuho Securities USA Inc., Case No. 12-cv-5550 (S.D.N.Y); In the Matter of Alexander V. Rekeda, Admin. Proc. No. 3-14953; In the Matter of Xavier Capdepon and Gwen Snorteland, Admin. Proc. No. 3-14954; In the Matter of Delaware Asset Advisers and Wei (Alex) Wei, Admin. Proc. No. 3-14952. On July 18, 2012, the SEC announced charges against Mizuho Financial Group and three former employees for misleading investors in a collateralized debt obligation (“CDO”). The SEC also charged the firm that served as the deal’s collateral manager and the person who was its portfolio manager. The case stems from the marketing of a CDO called Delphinus CDO 2007-1 (“Delphinus”). Delphinus was a CDO backed by subprime bonds, meansing 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 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 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 issued with ratings obtained by the conduct of Mizuho employees.
Everyone charged by the SEC agreed to settlements without admitting or denying the charges. 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. If approved, the settlement will also permanently enjoin Mizuho from violating Sections 17(a)(2) and (3) of the Securities Act. In the related administrative proceedings against Rekeda, Capdepon, and Snorteland, the SEC found that Rekeda violated Sections 17(a)(2) and (3) of the Securities Act, and Capdepon and Snorteland violated Section 17(a). Rekeda and Capdepon each agreed to pay a $125,000 penalty while the decision on whether there will be a penalty for Snorteland will be decided at a later date. Rekeda agreed to be suspended from the securities industry for 12 months, Capdepon and Snorteland each agreed to be barred from the securities industry for one year, and all three agreed to cease and desist from further violations of the respective sections of the Securities Act they violated. The SEC also instituted settled administrative proceedings against DAA and Wei based on their post-closing conduct. DAA consented to the entry of an order requiring the firm to pay disgorgement of $2,228,372, prejudgment interest of $357,776, and a penalty of $2,228,372. Wei consented to the entry of an order requiring him to pay a $50,000 penalty and suspending him from associating with any investment adviser for six months. Both DAA and Wei consented to cease and desist from violating Section 17(a)(2) and (3) of the Securities Act and Section 206(2) of the Advisers Act.