SEC Charges Mizuho Securities USA; CDO Investors Could Recover Losses

Stock fraud lawyers are currently investigating claims on behalf of investors who suffered losses as a result of their investment in a collateralized debt obligation (CDO) from Mizuho Securities USA. Mizuho Securities USA and three of its former employees were recently charged by the Securities and Exchange Commission with misleading investors in a CDO through the use of “dummy assets” which inflated the credit ratings of the deal.

According to the complaint filed by the SEC, Mizuho Securities made around $10 million in marketing and structuring fees through the deal. The firm has agreed to settle the SEC’s charges by paying $127.5 million. The SEC’s allegations state that Mizuho marketed and structured a CDO, Delphinus CDO 2007-1, which was backed by subprime bonds, when signs of severe distress were being exhibited by the housing market. Allegedly, when Mizuho employees realized the CDO would not be able to satisfy a rating agency’s criteria meant to protect investors of CDOs from rating downgrade uncertainties, they submitted a portfolio which contained dummy assets amounting to millions of dollars. This portfolio inaccurately reflected the CDO’s collateral. Once this inaccurate portfolio was rated, the transaction was closed and Mizuho sold the notes to investors. The CDO defaulted in 2008 and was liquidated in 2010.

“This case demonstrates once again that bankers and market participants who embrace a ‘get the deal done at all costs’ strategy will be identified, charged and punished,” says the director of the SEC’s Division of Enforcement, Robert Khuzami.

The chief of the SEC’s Enforcement Division’s Structured and New Products Unit, Kenneth Lench, added that “Mizuho and its employees undermined the integrity of the rating process by furnishing inaccurate information about the Delphinus portfolio. Investors expect and are entitled to receive legitimate ratings in order to help them assess their investments.”

Securities arbitration lawyers say that the Mizuho employees named in the SEC’s proceedings were Alexander Rekeda, Xavier Capdepon and Gwen Snorteland. Rekeda was head of the group that structured the CDO, Capdepon modeled the rating agencies’ transaction and Snorteland was the transaction manager who structured and closed the CDO.

According to stock fraud lawyers and records documenting the proceedings, all SEC charges have been settled. Mizuho agreed to pay disgorgement amounting to $10 million, prejudgment interest amounting to $2.5 million, and a penalty of $115 million.

Investors who purchased CDOs from Mizuho Securities USA, and suffered significant losses as a result, could recover losses through securities arbitration. To find out more about your legal rights and options, contact a securities arbitration lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.