NEWS ARTICLE SUMMARY - Essay Example

and Number Business Law Article Summary Citation: Rizzo, Patrick. “SEC Eyeing Action Against Standard & Poor’s” The Bottom line on MSNBC, http://bottomline.msnbc.msn.com/_news/2011/09/26/7970444-sec-eyeing-action-against- standard-poors, accessed on September 27, 2011.
Although Patrick Rizzo’s article entitled “SEC Eyeing Action Against Standard & Poor’s” is brief, it discusses an important issue and conflict that has been developing since the beginning of the recent American recession. Basically, the SEC(Securities and Exchange Commision), which is a part of the United States Government, is deciding whether or not to take legal action against Standard & Poors. Standard & Poors is an important financial company in the United States that provides services within the credit and stock industries. The issue between the SEC and Standard & Poors stems from the fact that the latter company may have violated “federal securities laws related to its ratings of collateralized debt obligations in 2007, as the financial crisis was getting under way”(Rizzo).
Standard & Poors is a company that often provides a service to the country by raising and lowering credit ratings of companies and countries. When it raises or lowers the rating, it is essentially providing a report card for how well that company/country is doing in their business and their business practices. The SEC believes that Standard & Poors basically did not do their job in monitoring companies like Sallie Mae and Freddie Mac which were significant contributors to the housing/ mortgage crisis that ultimately led the United States into this severe recession in the first place. According to Patrick Rizzo, “Some critics have said it(Standard & Poors) and other ratings agencies helped contribute to the crisis by not warning about the dangers of sub-prime mortgages(Rizzo). So, by publicly considering legal or civil action against Standard & Poors, the SEC is making a statement about this company and casting a negative light upon their practices.
It is important to think about what the SEC’s motive might be however in doing this. Last month, Standard & Poors lowered the United States credit rating from AAA to AA+(Swann). This was done in August 2011 and was said to be done due to the conflict going on in the United States government over raising the debt ceiling. The lowering of the credit rating was seen as a big deal and an overall comment on how the United States was doing in handling their economic woes. Therefore, it does not seem inconceivable that the SEC, which is a part of the government of the United States, might be creating this business law situation between themselves and Standard & Poors as a way to inflict a certain amount of punishment onto the company for the lowering of the credit rating. Perhaps the SEC is saying something to the effect of “how can you be so on top of things that you swiftly lower the credit rating of this country, but you couldn’t be bothered to pay attention to companies like Sallie Mae and Freddie Mac when they were engaging in unsound financial practices?”
According to this article, the SEC hasn’t taken any serious action against Standard & Poors yet, but has sent them something called a “Wells Notice” which Rizzo states “is is not a formal allegation and it does not imply any wrongdoing. It notifies the recipient that it is the target of an SEC probe that may or may not lead to civil charges”(Rizzo). Therefore, currently, it seems that the SEC is merely making a public statement, and it is unclear as to whether legal action will ever be taken. However, perhaps if the economy continues its downward spiral, it is fair to say that relations between these heavyweight, financial titans are not likely to improve any time soon.
Additional Reference:
Swann, Nikola. "United States of America Long-Term Rating Lowered To AA+ Due To Political Risks, Rising Debt Burden; Outlook Negative." Standard & Poors . 5 Aug. 2011. Web. 27 Sept. 2011. . Read More