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September 8, 2010 Wednesday
Kroll rating company Lace in trouble with SEC
Lace Financial, the boutique credit rating company acquired by Kroll Bond Rating Agency for $5 million in August, has been fined $20,000 for allegedly failing to disclose a possible conflict of interest as well as a rating made in favor of its largest client.
The SEC has censured and fined Lace Financial Corp. a sum of $20,000 for failing to disclose a conflict of interest and misstating its revenues, according to a cease and desist order issued Sept. 2 against the company and its founder and former majority shareholder, Barron Putnam.
Lace Financial, the credit rating company acquired by Jules Kroll and the Kroll Bond Rating Agency for $5 million in August, allegedly misstated the amount of revenue it received from its largest customer to win exemption from a conflict-of-interest rule, according to an SEC document.
Frederick, Md.-based Lace allegedly broke the law by failing to disclose in its application to become a nationally recognized statistic rating organization, or NRSRO, that it had performed an extra layer of review of a company in which Putnam had a stake. The company supposedly violated two other rules by failing to retain all e-mails relating to its credit ratings and by providing the SEC with inaccurate audited financial information. Finally, the SEC alleged, Lace broke the law when Putnam participated in determining a credit rating for an entity whose stock he owned.
The company, which uses an investor-pay model, must pay the fine and desist from future violations. Additionally, former Lace President Damyon Mouzon must attend a formal hearing in the next two to three months. According to a Sept. 6 news story in The Wall Street Journal, Mouzon made more than 150 ratings changes over a period of time between 2007 and 2008, approximately 85% of them upgrades.
September 14, 2010